THE RICARDIAN REFORMULATION OF THE THEORY OF VALUE

Ricardo's simplified model of the corn-based economy permitted the mechanisms of distribution to be analysed in real terms without reference to valuation. If, in fact, society had been organized exclusively along the lines of a giant farm in which corn was both the basic input and the only output, this formulation would have required no elaboration.

At a more general level of analysis the problem became less tidy. Outside agriculture, outputs were considerably more heterogeneous and their variety called for the aid of a device capable of reducing them to a common denominator. In short, statements about the division of the national revenue between the various income shares - when pursued in any depth - required a procedure for valuation.

In his search for a common factor linking all lines of production, it was not surprising that Ricardo should have hit upon labour as the crucial common denominator. In one form or another, a labour approach to value had already been built into the classical tradition. But

that was not all. Labour, it could be plausibly maintained, did indeed provide a realistic link: it entered into all lines of production.

Ricardo approached the problem of value along a path somewhat different from the one his predecessors had taken and he emerged from his inquiries with a different solution. Smith, for example, had addressed himself to the issue for the primary purpose of measuring changes in total output between time intervals of considerable length.

The tack Ricardo took was thus to come closer to the questions that were to dominate economic theorizing in a later stage - in particular, the analysis of price determination - than had Smith's. Even had he chosen to do so, Smith, with the tools he worked with, would have been precluded from offering a systematic account of relative price in labour terms. His procedure, it will be recalled, used labour as a 'measure of value' by reducing income to labour units that could be 'commanded'. On the input side, however, he lacked a basis for dissolving the nonlabour factors of production into labour units.

The Ricardian analysis of rent re-opened the labour input route to the analysis of value. Because he maintained that the price of corn was regulated by labour inputs on zero­rent land, the land factor of production could effectively be eliminated from the explanation of value. Capital, of course, was a different matter. But it appeared to be readily reducible to labour inputs. A machine, for example, could be viewed as embodied or accumulated labour, the productive powers of which would be transferred to current output over the course of its life. The value of a commodity could then be expressed in terms of labour inputs (both those applied directly and indirectly through embodiment in machines) required in its production.

At first glance it might appear that a satisfactory common denominator had been found. But, as Ricardo came increasingly to realize as he grappled with this issue, a labour­content interpretation of value became awkward precisely at the point where it was most needed - in the analysis of long period economic change. A crude labour-content explanation of relative price ran into heavy weather when important dynamic considerations were introduced into the analysis: e.g.

With the accumulation of capital, Ricardo saw that a number of complications were introduced. After all, it could not be assumed that the fixed capital stock employed in an economy would have uniform durability; nor could it be assumed that fixed and circulating capital were allocated in identical proportions in all lines of production. Once these elements of diversity in the productive structure were allowed, there was no longer any basis for holding that prices would correspond to labour inputs in a growing econor results could be obtained, for example, if wage rates were altered, even tl processes themselves were unchanged. The basic point to which Ricardc

attention was that a production process dominated by direct labour inputs would be more vulnerable to an increase in money wage rates than would one in which indirect labour inputs (i.e. labour embodied in fixed capital) were used. If a uniform rate of profit were to be maintained in all branches of production, then relative prices would diverge from ratios of labour inputs in production. Moreover, a divergence might arise from inequalities in the time periods of production. Two commodities produced with identical quantities of labour input would differ in price if one required longer commitments of capital before revenues were realized through sales than the other.

In short, the strict labour interpretation of value broke down. Ricardo still maintained that the discrepancies would be constrained within narrow limits. At one point in his treatment of the divergence of price ratios from labour input ratios of two commodities produced with differing proportions of direct and indirect labour, he asserted: 'The greatest effects which could be produced on the relative prices of these goods from a rise of wages, could not exceed six or seven per cent....'9 Labour content was only a crude approximation or, as he later put it, the foundation of value'.IO

This unsuccessful detour into value theory in a dynamic setting was not, however, devoid of significance.

In the third edition of Principles, Ricardo shifted his ground. After recounting his earlier opinions, he observed:

... I am convinced, that the substitution of machinery for human labour, is often very injurious to the interests of the class of labourers. My mistake arose from the supposition, that whenever the net income of a society increased, its gross income would also increase; I now, however, see reason to be satisfied that the one fund, from which landlords and capitalists derive their revenue, may increase, while the other, that upon which the labouring class mainly depend, may diminish, and therefore it follows, if I am right, that the same cause which may increase the net revenue of the country, may at the same time render the population redundant, and deteriorate the condition of the labourer.11

At base, Ricardo's worry about the possibly detrimental effects of machinery on employment stemmed from the view that the volume of circulating capital available to hire labour would be reduced by the purchase of fixed capital.

Ricardo was still hopeful that unemployment in this form could be averted, arguing that technological discoveries were necessarily gradual and could thus be assimilated without sudden shock. Ricardo saw the danger, but played down its practical significance. Nevertheless, his argument conflicted sharply with Smith's faith in the 'harmony of interests' between the various classes of society. Marx was later to pick up this theme and to give it a central position in his theoretical system.

4.