Theory of Value and Distribution
Torrens’s thinking on the theory of value and distribution developed in close relation to that of Ricardo, and comprised phases and elements of acknowledging, adopting, opposing, and rejecting Ricardo’s ideas.
Characteristically, Torrens’s anti-Ricardian stance became markedly more pronounced after the latter’s death in 1823, and it was Torrens who, in 1831, declared in the Political Economy Club that “all the great principles of Ricardo’s work had been successively abandoned”, and that “his theories of value, Rent and Profits were now generally acknowledged to have been erroneous” (Political Economy Club of London 1921: 225).In his Essay on the External Corn Trade (Torrens 1815 [2000]), which was published on the same day as Ricardo’s Essay on Profits (1815 [1951-73], IV), Torrens still adhered to Smith’s “adding-up of components” theory of value and accordingly
maintained that an increase in wages must raise all prices. He also had not yet absorbed the theory of differential rent (which he could have picked up from Malthus’s Inquiry), and his entire treatment of distribution suffered from a lack of systematic order and coordination. But soon after he had read Ricardo’s pamphlet, Torrens became “quite a convert” to Ricardo’s ideas on the theory of distribution. In particular, he picked up from Ricardo’s Essay on Profits (1815 [1951-73], IV) the idea of determining the rate of profits by assuming homogeneity between product and capital and also adopted Ricardo’s proposition regarding the inverse wage-profit relationship. The only part of the theory of distribution to which Torrens contributed something substantial in the first edition of his External Corn Trade is the theory of wages. Its novelty was not so much his definition of natural wages as equal to the level of the subsistence requirements of the worker and his family, but rather his stress on the importance of customs and habits in determining this level.
Moreover, Torrens also emphasized that “the natural price of labour,... though it varies under different climates, and with the different stages of natural improvement, may, in any given time and place, be regarded as very nearly stationary” (1815 [2000]: 64-5). This idea of treating the normal wage as given was not a novelty, of course, but Torrens spelt it out more clearly than any of his predecessors.In his review of Ricardo’s Principles, entitled “Strictures on Mr Ricardo’s Doctrine respecting Exchangeable Value” (1818 [2000]), Torrens then put forward a scathing criticism of the labour theory of value, which Ricardo had found it necessary to adopt in the first edition of his Principles in order to generalize his propositions on the inverse wageprofit relationship beyond the “corn-ratio” reasoning of the Essay. Torrens pointed out that:
the results obtained by the employment of equal capitals will be of equal worth in the market; and therefore, as equal capitals generally put unequal quantities of labour in motion, or, what comes to the same thing, as equal quantities of labour are put in motion by unequal capitals, the products of equal quantities of labour will be of unequal value. (1818 [2000]: 336)
His (valid) objections to Ricardo’s “embodied labour” based reasoning led him to advocate (what has later been called) a “capital theory of value”: That “it is always the amount of capital, and never the quantity of labour, expended on production, which determines the exchangeable value of commodities” (Torrens 1818 [2000]: 337). But Torrens soon had to admit that this “theory” had serious weaknesses, which eventually forced him to abandon it - and to have recourse to labour value reasoning again. First, there was the problem of defining “equal amounts of capital”, as Ricardo (1951-73, IX: 359-60) was quick to point out. When Torrens tried to solve this problem by specifying “equal amounts of capital” to mean “equal amounts of accumulated labour” in his Essay on the Production of Wealth (1821), the whole conception turned out to involve him in circular reasoning: “To disproof that commodities exchange according to labour embodied, Torrens starts from assuming that the commodities which constitute their capitals do so exchange” (De Vivo 2000, III: x-xi). Secondly, Torrens’s theory, as opposed to Ricardo’s labour-value based reasoning, does not allow the determination of the rate of profits, except by assuming the particular conditions of production for which homogeneity between product and capital obtains (that is, except when no theory of value is necessary to determine the rate of profits).
Nonetheless, Torrens’s numerical examples were sufficient to demonstrate the incompatibility between exchange in proportion to labour embodied and a uniform rate of profits, and the way in which Torrens posed the problem had some affinities with Marx’s formulation of the transformation problem. In his “Strictures” (1818 [2000]: 337; see also 1821 [2000]: 28), Torrens also introduced the idea of treating fixed capital as a joint-product, which subsequently was adopted also by Ricardo, Malthus and Marx, but then fell into oblivion until it was revived by Sraffa (1960).The main interest of Torrens’s subsequent contributions to the theory of distribution derives from his attempts to determine the general rate of profits without making use of the labour theory of value. In the second edition (1820) of the Essay on the External Corn Trade he formulated the “corn-ratio” theory of profits, that is, a determination of the rate of profits as a ratio between two physical amounts of corn (see De Vivo 1985, 2000, II: xxii). He also stated explicitly that given the agricultural rate of profits the prices of other commodities relative to corn are determined:
It may be laid down as a general principle, that in whatever proportion the quantity of produce obtained from the soil exceeds the quantity employed in raising it, in that proportion the value of manufactured goods will exceed the values of the food and material expended in producing them. (Torrens 1820 [2000]: 362; emphasis added)
However, Torrens did not content himself with “corn-ratio” reasoning, but also generalized the idea of a physically determined profit rate based on homogeneity between product and capital. He did so by formulating numerical examples in which the commodities enter into the net social product in the same composition in which they enter into the aggregate social capital, so that the general rate of profits can be determined as a physical ratio between two different quantities of a “composite commodity”, with no need to determine prices (1820 [2000]: 354).
In the Preface to the third edition (1826) of the Essay on the External Corn Trade Torrens then constructed numerical examples which showed that Ricardo’s inverse wage-profit relationship need not necessarily hold true if non-wage capital was properly taken into account: productivity-enhancing technical change could raise the general rate of profits without a fall of proportional wages (see Torrens 1826 [2000]: xv-xvi; see also De Vivo 2000, II: xxviii-xxix). Torrens’s demonstration anticipated Marx’s later criticism of Ricardo for his neglect of non-wage capital in his observations on profits and wages, which, according to Marx, had precluded him from recognizing the true cause of the tendency towards a falling rate of profit, that is, the rising organic composition of capital and the associated fall in the maximum rate of profits. (However, it must be mentioned that in The Budget (1844 [2000]: xxviii) Torrens later recanted this valid criticism, and claimed that Ricardo’s argument could be extended also to cases in which non-wage capital is taken into account.)