Torrens’s Criticisms of Ricardo’s Theory of Value and Distribution
One of Ricardo’s ablest critics among his contemporaries was Robert Torrens. His 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.
Starting out from Smith’s “adding-up” theory of value, in his Essay on the External Corn Trade (1815 [2000]) Torrens then adopted some of Ricardo’s ideas. In particular, he picked up from Ricardo’s Essay on Profits the idea of determining the rate of profits by assuming homogeneity between product and capital, and also endorsed Ricardo’s proposition regarding the inverse wage-profit relationship. However, in his “Strictures on Mr Ricardo’s doctrine respecting exchangeable value” (1818 [2000]), a review of Ricardo’s Principles, Torrens then put forward a criticism of the labour theory of value and to propose instead a “capital theory of value”: that “it is always the amount of capital, and never the quantity of labour, which determines the value of commodities” (1818 [2000], VIII: 5). However, he 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 specified this in his Essay on the Production of Wealth (1821 [2000]) in terms of “equal amounts of accumulated labour”, the whole conception was seen 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, as opposed to Ricardo’s labour-value based reasoning, this theory did not allow for a determination of the general 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 was necessary to determine the rate of profits). Nonetheless, the numerical examples Torrens produced were sufficient to demonstrate the incompatibility between exchange in proportion to labour embodied and a uniform rate of profits.The main interest of Torrens’s contribution lies in his attempts to determine the general rate of profits without following Ricardo in adopting the labour theory of value. In the second edition (1820) of his Essay on the External Corn Trade he provided a clear statement of the corn-ratio theory of profits (1820 [2000], II: 362). In the Essay on the Production of Wealth, published in 1821, Torrens then generalized the idea of homogeneity between product and capital 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 is determined as a physical ratio between two different quantities of a composite commodity, with no need to determine relative prices. Torrens’s example comprised two industries, one producing corn, the other suits of clothing, and both industries use both products in the same proportions (and actually in the same absolute amounts) as inputs (1821 [2000], III: 372-3).
Torrens was aware of the fact that physical homogeneity of product, surplus, and capital cannot be expected to hold in any real economy other than in highly special cases. In his attempt to deal with more general cases he was thus of necessity confronted with the complexity of the relationship between income distribution and relative prices. In yet another attempt to contain this complexity and arrive at a simple determination of the general rate of profits, Torrens resorted to the special assumption we just encountered, namely, that in all lines of production the same commodity input proportions apply. With a uniform real wage rate this assumption implies, of course, that relative prices are correctly explained by the labour theory of value. More specifically, commodities exchange for one another according to the quantities of labour contained in the (circulating) capitals (means of production and means of subsistence) used up in the course of their production.
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], II: 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. Unlike Marx, however, Torrens made no reference to the notion of a maximum rate of profits in his argument.