Back to Ricardo?

French liberal classical economists inherited a set of heterogeneous ideas. On many points, Say had opposed the views defended by Ricardo. In his lectures at the College de France from 1836 to 1838, Rossi tried to develop a synthesis incorporating some of the Ricardian propositions in a theoretical framework inherited from Say.

Rossi (1836-38 [1865], vol. 3: 121) argued that despite the heterogeneity of workers, there are laws governing the level and evolution of the wage rates. His starting point is the idea that the workers’ incomes may, according to circumstances, simply reward their labour, or also their capital and talents. These incomes should be broken down into wages proper, profits and rents. However, even if these distinctions are taken into account, there are differences between the wages in various occupations that may seem to be irreducible. Rossi argued that it is legitimate for pure science - rational political economy - to disregard these differences and to suppose a uniform wage rate.

He does not use the phrase “natural wage” but prefers to speak of a “necessary wage” defined as the indispensable remuneration to the worker in order to survive and support his family (Rossi 1836-38 [1865], vol. 3: 153). He admits, however, that the worker is not a commodity, that his salary is not technically determined. The use of this concept was criticized by Garnier (1847: 208) who stressed that this terminology is misleading because it suggests that any change in the price of wage goods immediately affects the wage rate. It is not so: it is only through its action on the supply of labour that the price change affects the wage rate.

Rossi took up some aspects of the Ricardian theory of intensive rent. For example, he stressed that if the amount of labour and capital employed on a given plot of land increases, the product increases less than proportionally. This assertion allowed him to dismiss Say’s criticism (Rossi 1836-38 [1865], vol. 3: 140) that Ricardo’s theory of rent was based on the assumption that the marginal land does not get a rent. However, this vindication of Ricardo remains equivocal because Rossi criticized him for having dis­regarded that the rent on a piece of land not only depends on its relative productivity, as compared to other lands, but also on its absolute productivity; and - neglecting the analysis that Ricardo made of the effects of technical progress on rent - he argued that improving land productivity increases their rent in all cases.

Bastiat believed that all previous theories on rent were based on the same mistake: they attribute “a specific value, independent of any human service, either to the elements of labour, or to the forces of nature. Hence, property is as unjustifiable as unintelligible” (Bastiat 1850 [1851]: 248, original emphasis). Bastiat argued in two steps. When there is still land to clear, the landowner enjoys no monopoly, and if he receives a rent, this may only be because of the labour he spent to render it cultivable and to improve it. If, on the contrary, all the land is cultivated, “the value of land... depends not only on the labour spent but moreover on the power which lies in society to pay for this labour; [it depends] on demand as well as supply” (ibid.: 288). Bastiat thus seems to go back to Rossi’s opinion that rent is the difference between the market price and the natural price of the products of land. Bastiat’s assertion provoked a lasting controversy.

The second problem is the analysis of the evolution of distribution in a growing economy. Ricardo explained that as capital accumulates and population grows, it is nec­essary to cultivate less fertile qualities of land: man must spend an increasing amount of work to get an equal amount of subsistence. Rent increases while the rates of wages and profits decline if technical progress is set aside. To the Ricardian theory, Bastiat opposes the idea that the accumulation of capital makes for better use of natural resources and increases the production more than proportionally. When capital accumulates, profits increase but their share in the product decreases. The share of labour and the sum total of wages increase. Bastiat (1850 [1851]: 12) thought that he has thus shown the “harmony of interests between workers and their employers”.

Molinari’s analysis of distribution is based on the concept of net product defined as the difference between the gross product and what is needed “to replace the share of productive factors that had been completely destroyed or consumed, [and] to repair and renew that which was partly destroyed” (Molinari 1855 [1863], vol. 1: 49-50). The necessary price of the various services - of land, capitals and the various kinds of labour - is the amount necessary to maintain and replace them. The gross profits of capital must, for example, cover the replacement cost and provide a premium sufficient to compensate for the deprivation of immediate enjoyment which the owner consent to. When the net product is nil, the quantity produced remains the same through time. Similarly, if the payment for a service is equal to its necessary price, the amount avail­able remains constant. If the net product is positive, production will increase if each service receives a “proportional” share thereof. The natural price of a service includes, beyond its necessary price, a share of the net product sufficient to grow at the required rate. The market prices of services gravitate around this natural price. If one of them received a payment greater than its natural price, its quantity would increase more rapidly than that of the other services and the relative excess would lead to a decline in its current price.