The Origins of Classical Political Economy: William Petty
In Marx’s judgement the contributions of William Petty mark the beginning not only of classical political economy but also of systematic economic analysis on a scientific basis more generally (for a similar view, see Hutchison 1988: 6).
Petty was conscious of founding a new science and variously discussed questions of method in his writings. As a physician, he was keen to adopt an objectivist or natural science point of view, and he called the new science he set out to establish “political anatomy”, or “political arithmetic” (1690 [1986]: 244). Petty proposed to adopt a strictly objectivist approach to political economy; he intended to analyse the “body politick” like a physician analyses the human body, basing himself on the principles of anatomy. Petty’s economic thought accordingly was directed at finding relations between quantifiable, measurable objects.Surplus, distribution, and prices
Petty conceived of the production process of the economic system as a whole as a circular process, in which commodities are produced by means of commodities. The circular character of production processes is immediately evident in agricultural production, where corn is produced by means of corn (as seed), but according to Petty the concept of an economic circular flow was applicable also to the system as a whole. Deducting from the annual gross produce, which consists of a heterogeneous set of commodities, the amounts of the various commodities used up in its production gives the annual net product, or surplus produce. The wage goods used up by (productive) workers Petty reckoned as part of the necessary annual production advances. In his Treatise on Taxes and Contributions of 1662 he illustrated the concept of the surplus by means of the production of corn:
Suppose a man could with his own hands plant a certain scope of Land with Corn, that is, could Digg, or Plough, Harrow, Weed, Reap, Carry home, Thresh, and Winnow so much as the Husbandry of his Land requires; and had withal Seed wherewith to sowe the same.
I say, that when this man has subducted his seed out of the proceed of the Harvest, and also, what he himself has both eaten and given to others in exchange for Clothes, and other Natural necessaries; that the remainder of Corn is the natural and true Rent of the Land for that year; and the medium of seven years, or rather of so many years as makes up the Cycle, within which Dearths and Plenties make their revolution, doth give the ordinary Rent of the Land in Corn. (Petty 1662 [1986]: 43)Corn rents are explained as a surplus that remains after deducting the amount of seed corn and the corn consumption of the workers, as well as corn exchanged for “Clothes, and other Natural necessaries”. Petty here ran up against the problem of finding a rule for determining the exchange ratios between different commodities (in this case between corn and clothing and other necessaries) so as to make the heterogeneous inputs commensurate - a problem that was to occupy the classical political economists for a long time. In the case of corn production the problem could be avoided by boldly supposing no material inputs apart from seed corn were required and the workers’ subsistence requirements consisted of corn alone, or else by conceiving of the latter as a catch-all for a heterogeneous commodity bundle, as Petty indeed explicitly did when he referred to “Corn, which we will suppose to contain all necessaries for life, as in the Lords Prayer we suppose the word Bread doth” (1662 [1986]: 89).
Petty stressed that the surplus can also be expressed in terms of the additional number of persons who can be maintained, given the amount of corn needed per person for subsistence, by a given number of workers engaged in the production of necessaries, taking as given the prevailing production methods and the length of the working day (1662 [1986]: 30). The size of the corn surplus then determines the number of persons who can be maintained beyond those engaged in producing corn, that is, “helpless and impotent Persons”, “supernumeraries” (unemployed persons) and “Divines, Lawyers, Physicians, Merchants, and Retailers” (1662 [1986]: 29-30).
Petty was particularly interested in ascertaining the number of “supernumeraries”, whom he proposed to engage in military service and public works (building of roads, bridges, canals, and so on), to be financed out of taxes on rents (ibid.). His main concern in the Treatise was thus with explaining how taxation can finance surplus employment by extracting and redistributing the surplus product from necessary consumption.Petty clearly identified the concept of the surplus, although he conceived of it only in the specific form of rent (and taxes), and of “rent on money capital” (interest), as derived from the former. His object of analysis was a pre-capitalist society, in which economic (and political) power was still related to landed property, and although he knew money lending, he had no notion of profit as a separate income category, and also no proper notion of capital. Petty also failed to develop a systematic analysis of the determination of wages, but he noted that for given technical conditions of production there is an inverse relationship between wages and rents: If “Wages... rise... consequently the Rents of Land must fall” (1690 [1986]: 267). Moreover, he also suggested that the common wage is given by the average amount of food that a worker needs to eat “so as to Live, Labour, and Generate” (1691 [1986]: 181). This can be regarded as an early formulation of the classical concept of the “natural wage”, which keeps the supply of labour constant without either increase or diminution, which can be encountered later in more elaborate form in Smith and Ricardo. He also noted that with rapid economic growth the increased demand for labour could raise wages above subsistence, and thus stimulate population growth or immigration. Accordingly, we find foreshadowed in Petty also the idea of labour supply adapting to the demand for labour.
Prices and exchange ratios
In his attempts at developing a theory of value Petty introduced the distinction between “natural values” and “accidental values”.
The former are taken to reflect the “permanent Causes” governing the relative values of commodities; they are determined by difficulty of production, or production costs, whereas “accidental values” are also affected by “contingent Causes”, such as ship wrecks or bad harvests (1662 [1986]: 51,90). For Petty only the former can be the object of systematic economic analysis. Petty’s approach to the determination of “natural values” starts out from his famous dictum: “Labour is the father and active principle of Wealth, as Lands are the Mother” (1662 [1986]: 68). In fact, Petty proclaimed thatAll things ought to be valued by two natural Denominations, which is Land and Labour, that is, we ought to say, a Ship or garment is worth such a measure of Land, with such another measure of Labour, forasmuch as both Ships and Garments were the creatures of Lands and mens Labours thereupon. (1662 [1986]: 44)
Although with both measures values are expressed in natural denominations he considered this insufficient and suggested reducing them further to a common measure of value: “the most important Consideration in Political Oeconomies” is “how to make a Par and Equation between Lands and Labour, so as to express the Value of any thing by either alone” (1691 [1986]: 181, original emphases). In Petty’s example to illustrate this it is assumed that land alone (without any labour) yields an annual produce in the amount of 50 days’ food, whereas labour alone (or rather, labour in addition to land) generates an (additional) annual produce in the amount of at least ten days’ food. In Petty’s view, the amounts of days’ food thus provide the sought-after “common measure”, and the ratio between the amounts of days’ food generated by land and labour respectively can be used for transforming the amounts of embodied land units into amounts of embodied labour units, or vice versa. After explaining that the amounts of days’ food used in the equation always refer to those which can be procured most easily in each country (as, for instance, rice in India, or oatmeal in Ireland), Petty succinctly summarized his method in the following terms: “the days food of an adult Man, at a Medium, and not the days labour, is the common measure of Value...
Wherefore I valued an Irish Cabbin at the number of days food, which the Maker spent in building of it” ([1691] 1986: 181-2, original emphasis).Petty thus proposed as a common measure of the physical costs of production the total amount of the means of subsistence, summarily expressed in terms of his notion of “food”. The value of each commodity could be ascertained, Petty maintained, by the total amount of “food” required, directly and indirectly, in producing it. However, although Petty formulated a theory of natural values, which he also construed as a kind of centre of gravity for relative prices, “this theoretical construction finds almost no operational role in Petty’s economic writings” (Aspromourgos 1996: 49). In fact, it is not needed in the case of Petty’s corn model reasoning in the strict sense, that is, in a one- commodity model, and not applied by him when he accounts for heterogeneous inputs in the production of corn. There he argues as if the measure for expressing non-corn inputs in corn units were already known.
In conclusion, it may be said that Petty’s economic thought, although concerned with the analysis of a pre-capitalist social economy, was the original stimulus for further developments around the notion of surplus in classical political economy. However, many elements were still missing: Petty had no theory of profits (and, therefore, no theory of capital), no theory of competition, and no method for ascertaining the surplus when inputs and outputs consisted of heterogeneous commodities. Except for the simplifying case of the one-commodity or “corn” model, Petty could not properly determine the size of the surplus, and could determine “natural values” only by assuming the “amounts of days’ food” as known.