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the article ceases to agree with the natural value. The real law of demand and supply, the equation between them, holds good in all cases: if a value different from the natural value be necessary to make the demand equal to the supply, the market value will deviate from the natural value ; but only for a time; for the permanent tendency of supply is to conform itself to the demand which is found by experience to exist for the commodity when selling at its natural value. If the supply is either more or less than this, it is so accidentally, and affords either more or less than the ordinary rate of profit; which, under free and active competition, cannot long continue to be the case. To recapitulate: demand and suppl

govern the value of all things whic cannot be indefinitely increased; except that even for them, when produced

by industry, there is a minimum value, determined by the cost of production, But in all things which admit of inde. finite multiplication, demand and supply only determine the perturbations of value, during a period which cannot exceed the length of time necessary for altering the supply. . While thus ruling the oscillations of value, they themselves obey a superior force, whic makes value gravitate towards Cost of Production, and which would settle it and keep it there, if fresh disturbing influences were not continually arising to make it again deviate. To pursue the same strain of metaphor, demand and supply always rush to an equilibrium, but the condition of stable equilibrium is when things exchange for each other according to their cost of production, or, in the expression we have used, when things are at their Natural Value.

CHAPTER IV.

ULTIMATE ANALYSIS OF COST OF PRODUCTION.

§ 1. THE component elements of Cost of Production have been set forth in the First Part of this enquiry.* The principal of them, and so much the principal as to be nearly the sole, we found to be Labour. What the o of a thing costs to its proucer, or its series of producers, is the labour expended in producing it. If we consider as the producer the capitalist who makes the advances, i. word Labour may be replaced by the word Wages: what the produce costs to him, is the wages which he has had to pay. At the first glance indeed this seems to be only a part of his outlay, since he has not only paid wages to labourers, but has likewise provided them with tools, materials, and pero buildings. These tools, materials, and buildings, however, were produced # labour and capital; and their value, like that of the article to the production of which they are subservient, * Supra, pp. 19, 20.

depends on cost of production, which again is resolvable into labour. The cost of production of broadcloth does not wholly consist in the wages of weavers; which alone are directly paid by the cloth manufacturer. It consists . of the wages of spinners and woolcombers, . it may be added, of shepherds, all of which the clothier has paid for in the price of yarn. It consists too of the wages of builders and brickmakers, which he has reimbursed in the contract price of erecting his factory. It partly consists of the wages of machine-makers, iron-founders, and miners. And to these must be added the wages of the carriers who transported * of the means and appliances of the production to the place where they were to be used, and the product itself to the place where it is to be sold. The value of commodities, there. fore, depends principally (we shall presently see whether it depends solely) on the quantity of labour required for their production; including in the idea of production, that of conveyance to the market. “In estimating,” says Ricardo,” “the exchangeable value of stockings, for example, we shall find that their value, comparatively with other things, depends on the total quantity of labour necessary to manufacture them and bring them to market. First, there is the labour necessary to cultivate the land on which the raw cotton is grown; secondly, the labour of conveying the cotton to the country where the stockings are to be manufactured, which includes a portion of the labour bestowed in building the ship in which it is conveyed, and which is charged in the freight of the goods; thirdly, the labour of the spinner and weaver; fourthly, a portion of the labour of the engineer, smith, and carpenter, who erected the buildings and machinery by the help of which they are made; fifthly, the labour of the retail dealer, and of many others, whom it is unnecessary further to particularize. The aggregate sum of these various kinds of labour, determines the quantity of other things for which these stockings will exchange, while the same consideration of the various quantities of labour which have been bestowed on those other things, will equally govern the portion of them which will be given for the stockings. “To convince ourselves that this is the real foundation of exchangeable value, let us suppose any improvement to be made in the means of abridging labour in any one of the various processes through which the raw cotton must pass before the manufactured stockings come to the market to be exchanged for other things; and observe the effects which will follow. If fewer men were required to cultivate the raw cotton, or if fewer sailors were employed in navigating, or shipwrights in constructing, the ship in which it was conveyed to us; if fewer hands were employed in raising the buildings and machinery, orif these, when raised,

* Principles of Political Economy and Taaration ch. i. sect. 3.

were rendered more efficient; the stockings would inevitably fall in value, and command less of other things. They would fall, because a less quantity of labour was necessary to their production, and would therefore exchange for a smaller quantity of those things in which no such abridgment of labour had been made. “Economy in the use of labour never fails to reduce the relative value of a commodity, whether the saving be in the labour necessary to the manufacture of the commodity itself, or in that necessary to the formation of the capital, by the aid of which it is produced. In either case the price of stockings would fall, whether there were fewer men employed as bleachers, spinners, and weavers, persons immediately necessary to their manufacture; or as sailors, carriers, engineers, and smiths, persons more indirectly concerned. In the one case, the whole saving of labour would fall on the stockings, because that portion of labour was wholly confined to the stockings; in the other, a portion only would fall on the stockings, the remainder being applied to all those other commodities, to the production of which the buildings, machinery, and carriage, were subservient.”

§ 2. It will have been observed that Ricardo expresses himself as if the quantity of labour which it costs to produce a commodity and bring it to market, were the only thing on which its value depended. But since the cost of production to the capitalist is not labour but wages, and since wages may be either greater or less, the quantity of labour being the same; it would seem that the value of the product cannot be determined solely by the quantity of labour, but by the quantity together with the remuneration; and that values must partly depend on wages.

In order to decide this point, it must be considered, that value is a relative term; that the value of a commodity is not a name for an inherent and substantive quality of the thing itself, but means the quantity of other things which can be obtained in exchange for it. The value of one thing, must always be understood relatively to some other thing, or to thingsin general. Now the relation of one thing to another cannot be altered by any cause which affects them both alike. A rise or fall of general wages is a fact which affects all commodities in the same manner, and therefore affords no reason why they should exchange for each other in one rather than in another proportion. To suppose that high wages make high values, is to suppose that there can be such a thing as general high values. But this is a contradiction in terms: the high value of some things is synonymous with the low value of others. The mistake arises from not attending to values, but onl

to prices. Though there is no suc

thing as a general rise of values, there is such a thing as a general rise of prices. As soon as we form distinctly the idea of values, we see that high or low wages can have nothing to do with them : but that high wages make high prices, is a popular and wide-spread opinion. The whole amount of error involved in this proposition can only be seen tool, when we come to the theory of money; at present we need only say that if it be true, there can be no such thing as a real rise of wages; for if wages could not rise without a proportional rise of the price of everything, they could not, for any substantial purpose, rise at all. This surely is a sufficient reductio ad absurdum, and shows the amazing folly of the propositions which may and do become, and long remain, accredited doctrines of popular political economy. It must be remembered, too, that general high prices, even supposing them to exist, can be of no use to a producer or dealer, considered as such; for if they increase his money returns, they increase in the same degree all his expenses. There is no mode in which capitalists can compensate themselves for a high cost of labour, through any action on values or prices. It cannot be prevented from taking its effect in low profits. If the labourers really get more, that is, get the pro

duce of more labour, a smaller percentage must remain for profit. From this Law of Distribution, resting as it does on a law of arithmetic, there is no escape. The mechanism of Exchange and Price may hide it from us, but is quite powerless to alter it.

§ 3. Although, , however, general wages, whether high or low, do not affect values, yet if wages are higher in one employment than another, or if they rise or fall permanently in one employment without doing so in others, these inequalities do really operate upon values. The causes which make wages vary from one employment to another, have been considered in a former chapter. When the wages of an employment permanently exceed the average rate, the value of the thingFo will, in the same degree, exceed the standard determined by Imere o of labour. Things, for example, which are made by skilled labour, exchange for the produce of a much greater quantity of unskilled labour; for no reason but because the labour is more highly paid. If through the extension of education, the labourers competent to skilled employments were so increased in number as to diminish the difference between their wages and those of common labour, all things #. by labour of the superior

ind would fall in value, compared with things produced by common labour, and these might be said therefore to rise in value. We have before remarked that the difficulty of passing from one class of employments to a class greatly superior, has hitherto caused the wages of all those classes of labourers who are separated from one another by any very marked barrier, to depend more than might be sup

osed upon the increase of the popu}. of each class, considered separately; and that the inequalities in the remuneration of labour are much greater than could exist if the competition of the labouring people generally, could be brought practically to bear on each particular employment. It follows from this, that wages in

different employments do not rise or fall simultaneously, but are, for short and sometimes even for long periods, nearly independent of one another. All such disparities evidently alter the relative cost of production of different comm...dities, and will therefore be completely represented in their natural or average value.

It thus appears that the maxim laid down by some of the best political economists, that wages do not enter into value, is expressed with greater latitude than the truth warrants, or than accords with their own meaning. Wages do enter, into value. The relative wages of the labour necessary for producing different commodities, ffect their value just as much as the elative quantities of labour. It is true, the absolute wages paid have no ffect upon values; but neither has the absolute quantity of labour. If that were to vary simultaneously and equally in all commodities, values would not be affected. If, for instance, the general efficiency of all labour were increased, so that all things without exception could be produced in the same quantity as before with a smaller amount of labour, no trace of this general diminution of cost of production would show itself in the values of commodities. Any change which might take place in them would only represent the unequal degrees in which the improvement affected dif. ferent things; and would consist in cheapening those in which the saving of labour had been the greatest, while those in which there had been some, but a less saving of labour, would actually rise in value. In strictness, therefore, wages of labour have as much to do with value as quantity of labour: and neither Ricardo nor any one else has denied the fact. In con|sidering, however, the causes of variastions in value, quantity of labour is the thing of chief importance; for when that varies, it is generally in one or a few commodities at a time, but the variations of wages o: passing fluctuations) are usually general, and have no considerable effect on value.

§ 4. Thus far of labour, or wages, as an element in cost of production. But in our analysis, in the First Book, of the requisites of production, we found that there is another necessary element in it besides labour. There is also capital; and this being the result of abstinence, the produce, or its value, must be sufficient to remunerate, not only all the labour required, but the abstinence of all the persons by whom the remuneration of the is. classes of labourers was advanced. The return for abstinence is Profit. And profit, we have also seen, is not exclusively the surplus remaining to the capitalist ..". has been compensated for his outlay, but forms, in most cases, no unimportant part of the outlay itself. The flax-spinner, part of whose expenses consists of the Fo of flax and of machinery, has

ad to pay, in their price, not only the wages of the labour by which the flax was grown and the machinery made, but the profits of the grower, the flaxi dresser, the miner, the iron-founder, and the machine-maker. All these profits, together with those of the spinner himself, were again advanced b the weaver, in the price of his material, linen yarn: and along with them the profits of a fresh set of machine-makers, and of the miners and iron-workers who supplied them with their metallic material. All these advances form part of the cost of production of linen. Profits, therefore, as well as wages, enter into the cost of production which determines the value of the produce.

Value, however, being purely relative, cannot depend upon absolute profits, no more than upon absolute wages, but upon relative profits only. High oft cannot, any more than high general wages, be a cause of high values, because high general values are an absurdity and a contradiction. In so far as profits enter into the cost of production of all things, they cannot affect the value of any. It is only by entering in a greater degree into the cost of production of some things than of others, that they can have any influence on value.

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If gunpowder exchanged for other things in no higher ratio than that of the labour required from first to last for producing it, no one would set up a powder-mill. Butchers are certainly a more prosperous class than bakers, and do not seem to be exposed to greater risks, since it is not remarked that they are oftenerbankrupts. They seem, therefore, to obtain higher profits, which can only arise from the more limited competition caused by the unpleasantness, and to a certain degree, the unpopularity of their trade. But this higher profit implies that they sell oneir commodity at a higher value than that due to their labour and outlay. All inequalities of profit which are necessary and permanent, are represented in the relative values of the commodities.

§ 5. Profits, however, may enter more largely into the conditions of production of one commodity than of another, even though there be no dif. rofit between he one commodity may be called upon to yield profit during a longer period of time than the other. The example by which this case is usually illustrated is that of wine. Suppose a quantity of wine, and a quantity of cloth, made by equal amounts of labour, and that labour The cloth does not improve by keeping; the wine does. Suppose that, to attain the desired quality, the wine requires to be kept five years. The producer or dealer will not keep it, unless at the end of five years he can sell it for as much more than the cloth, as

amounts to five years profit, accumu

lated at compound interest. The wine and the cloth were made by the same original outlay. Here then is a case

in which the natural values, relatively to one another, of two commodities, do not conform to their cost of production alone, but to their cost of production plus something else. Unless, indeed, for the sake of generality in the expression, we include the profit, which the wine-merchant foregoes during the five years, in the cost of production of the wine: looking upon it as a kind of additional outlay, over and above his other advances, for which outlay he must be indemnified at last. All commodities made by machinery are assimilated, at least approximately, to the wine in the preceding example. , In comparison with things made wholly by immediate labour, profits enter more largely into their cost of production. Suppose two commodities, A and B, each requiring a year for its production, by means of a capital which we will on this occasion denote by money, and suppose to be 1000l. A is made wholly by immediate labour, the whole 1000l. . expended directly in wages. B is made by means of labour which costs 500l. and a machine which costs 500l., and the machine is worn out by one year's use. The two commodities will i. exactly of the same value; which, if computed in money, and if profits are 20 per cent. per annum, will be 1200l. But of this 1200l., in the case of A, only 200l., or one-sixth, is profit: while in the case of B there is not only the 200l., but as much of 500l. (the price of the machine) as consisted of the profits of the machine-maker; which, if we suppose the machine also to have taken a year for its production, is again one-sixth. So that in the case of A only one-sixth of the entire return is profit, whilst in B the element of profit comprises not only a sixth of the whole, but an additional sixth of a large part. The greater the proportion of the whole capital which consists of machinery, or buildings, or material, or anything else which must be provided before the immediate labour can commence, the more largely will profits enter into the cost of production. It is equally true, though not so obvious

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