The Labour Theory of Value Before Karl Marx (1934)

From the July 1934 issue of the Socialist Standard

The labour theory of value is the view that the value of an article is determined by its cost of production in human labour power—according to the conditions of the time. In its fully developed form it was analysed and explained in detail by Karl Marx in “Capital.” We are not concerned at the moment with the theory as it was finally worked out. We are only concerned with the forerunners of Marx, who contributed something to the view. Owing to limits of space we can only consider briefly the most outstanding of these forerunners.

Value presented an insoluble problem for over two thousand years. The first glimmerings of a solution did not appear until the middle of the seventeenth century, when a society mainly concerned with the buying and selling of goods began to take definite shape in this country and was in process of taking shape on the Continent.

As far back as the time of Aristotle—two thousand three hundred years ago—the problem was in the air. Aristotle himself, in his “Politics,” and in his “Ethics,” had something to say about it. He knew that there must be some property common to objects as unlike as bread and shoes that made it possible to measure them against each other. He knew that the common property was not their usefulness, but he was unable to find out what it really was. He ends his examination rather lamely with the remark that people have agreed to estimate value in money. And this after he had already pointed out that exchange existed before money. He makes the illuminating remark, however, that profit-making originated with coin.

For hundreds of years this formed the limit of knowledge on the subject.

As commerce spread over society and accumulating money became increasingly the aim in social dealings, the question of the value of money came more and more to the front, particularly when succeeding representatives of the royal treasury sought to build up waning funds by debasing the coinage. Consequently, during the later middle ages, a considerable literature grew up around monetary matters. With the dawn of capitalist society, in the 17th century, the question became acute. The problem before the writers was: How did wealth originate? Or, as we would put, it: What was the source of surplus-value?

Out of these discussions two main schools of thought developed. The Mercantilists and the Physiocrats, one English and the other French. The Mercantilists claimed that wealth accumulated by means of trade, through buying from the foreigner cheap and selling to him dear. In other words, by having a favourable balance of trade,” an idea that still persists, as witness the nature of the discussions during the recent financial crisis. The Mercantilists, consequently, propagated the view that the traders were the most important group in the nation and were the builders of the nation’s wealth. An idea quite in harmony with conditions that were raising the trader to the most influential position in society.

Thomas Mun, a leading merchant of the time and a director of the East India Company, wrote a book that was published in 1664 entitled “England’s Treasure by Foreign Trade,” which puts forward the Mercantilist view very clearly and vigorously.

The Physiocrats, a group that originated nearly a hundred years later in France, a country whose main prop at the time was agriculture, held an entirely different view. According to them, wealth originated solely in agricultural production, as it was only by farming that a man received back for his work more than it cost to keep him, and, out of the surplus, the trader and the rest of the population lived. Turgot, a prominent Physiocratic writer, who appeared towards the end of their influence, puts their outlook very clearly in his book, “Reflections on the Formation and the Distribution of Riches,” published in 1766.. The Physiocratic doctrines were an expression of the interests and outlook of the capitalist farmer, and Mirabeau, one of their leading political representatives, took a prominent part in the French Revolution.

Turgot was a very clear thinker. He had a considerable knowledge of history and had travelled far enough intellectually to point out that the labourer’s wage was determined by his cost of subsistence.

Sir William Petty, an important member of the Mercantilist school of thought, was the first to make a real contribution to the labour theory of value. In a book he wrote that was published in 1662 and entitled “A Treatise on Taxes,” he states quite plainly that it is labour that gives value to things, but, under the influence of his trading outlook, he defines exchange-value as money, and the particular labour employed in the production of gold and silver as the value-producing labour. Hence he was led into confusion.

He wrote a series of essays in "Political Arithmetic,” which represents the first form in which economics is treated as a separate department of knowledge. These essays are remarkable for brevity and clarity. In one of them he explains in a paragraph the significance of the division of labour as illustrated by a watch, and he does it in a manner that showed he had a clearer grasp of the point than Adam Smith, although, writing a hundred years earlier. Adam Smith confused the social division of labour with the division of labour inside a single workshop, but Petty made no such mistake.

In 1733, Richard Cantillon, another merchant, wrote his book “On the Nature of Commerce in General." In it he stated that the value of a thing was nothing more than the measure of the land and the labour which enters into its production. He was influenced by the Physiocratic idea of the importance of agriculture, as also to some extent was Adam Smith. Cantillon held the view that the daily work of the humblest slave corresponded in value to twice the produce of the land on which he subsisted.

After Petty there was another thinker, probably the clearest thinker of his age, who put forward the labour theory of value in a broad form. This man was Benjamin Franklin, who, in 1729, when barely twenty-three years of age, wrote an essay entitled “A Modest Inquiry into the Nature and Necessity of a Paper Currency." In this essay he argues that the value of articles is measured by the time taken to produce them, but he considers that money has an extra value on account of the way in which it facilitates exchanges. In spite of his clearness of thought he, like his predecessors, was lost in the mystery of money. In fact, all those who preceded Marx got into difficulties when they came to treat of money. In their efforts to analyse money they frequently contradicted the sound views they had previously put forward on value in general.

Another youthful writer, an Italian named Ferdinando Galiani, published a book, in 1750, entitled, “Dell Moneta." He was only twenty-two years old when he wrote it. In this book he pointed out that labour was the sole source of value, but he confused the wages of the worker with the value of the article produced. For instance, he contended that the value of a woollen article was equal to the cost of the raw wool plus the cost of supporting the men who produced the woollen article.

In 1777, Adam Smith’s “Wealth of Nations" appeared. In it he attributed the accumulation of wealth to the division of labour. He made a considerable advance in the analysis of questions concerning economics, but he was still far from understanding the real nature of value. He held that the determination of the value of an article by the labour-time taken to produce it was true of earlier times, but not of the developed capitalism of his day. He also fell into the same error as Galiani, confusing the value of what a man produces with the value of what he gets—his wages. If this view were accepted, then the value of all the articles produced would only be equal to the total wages paid to the workers who produced them.. This was the state of affairs the later Utopians yearned for and what they would have called “fair exchanges." Adam Smith also failed to see that the labour of an engineer and the labour of a bootmaker could not be compared as such—they had both to be reduced to a common basis, the simple expenditure of human energy.

How weak Adam Smith’s grasp of the problem was may be gathered from the fact that he put “labouring cattle" under the heading of productive labourers, and also attributed value-creating properties to “profits of stock” and to the forces of nature.

The progress in knowledge of the labour theory before Marx really ended with David Ricardo, a stockbroker, who made the final contribution in his book, "On the Principles of Political Economy and Taxation,” published in 1817. His fundamental proposition is that the values of all articles, including the value of labour-power, is determined by the labour required to produce them with the prevailing skill and methods. But, as Frederick Engels has pointed out, Ricardo did not see that it was labour-power and not labour that was the value-producing quality, and hence, that the transformation of money into capital was based upon the buying and selling of labour-power. It was the discovery of this fact that gave Marx the key to the problem, and it was Ricardo’s failure to see it that landed him into difficulties when he came to treat of the more complex forms of money.

As a capitalist himself, and one who made a fortune on the stock exchange, Ricardo was quite clear, in fact brutally clear, about the basis of the present social system and its aim, which, he pointed out, was production for profit. He was against State interference in industry, and contended that wages should be left to free competition. He also held the view that the prevailing economic tendency was for wages and rent mutually to increase until they swallowed profit, and he foresaw a time when all property would belong to owners of land and receivers of tithes and taxes. He was quite clear, however, about the fact that neither wages nor profit, nor rent, entered into the determination of the value of an article. Surplus-value, he showed, was the portion of value left after deducting the wages of the producer from the value he added, but he was inclined to confound surplus-value with profit.

As already mentioned, the analysis of value really ended with Ricardo. Nobody after him added anything of importance to his work. The so-called “Ricardian Socialists” who followed him accepted his view that labour was the source of value, and, on the basis of it, demanded that all products should belong to the labourer.

The first of these writers was William Thompson, an Irish landlord, who, in 1824, wrote a book entitled “An Inquiry into the Principles of the Distribution of Wealth most conducive to human Happiness.” As the title of his book suggests, the ideas of the “Utilitarian” philosopher, Bentham, had an influence on his outlook. He defined the existing social system as one of force and fraud, and he proposed a new system on Owenite principles. He was very much interested in the Owenite co-operative experiments and visited the Owenite colony at Ralahine, in Ireland.

He took as his basis the view that all wealth is the product of labour. He contended that all men are equal, or nearly so, and therefore capable of producing equal quantities of wealth. Wealth is unequally divided, therefore the few possessors must abstract it from the many producers.

Neither he nor those of the same group who followed him really understood the nature of value. They thought the seller arbitrarily raised the value of articles above the wages paid to the producers, which they took to be the real value. He held that labour was not, at present, an accurate measure of value, on the ground that desires are apt to vary, but he contended that in a future social system such as he proposed, commodities would exchange at the “ value of real use." He assumed that the future system would also be a system of commodity production, but “fair" exchange would be the social principle.

Thompson's confused views of value are illustrated by the fact that he believed machinery added additional value to products beyond the value as mere instruments of production, and also that, in certain instances where labour is saved in the production of an article, value is added to it by this saving of labour.

In 1825, a year after Thompson's book, appeared, Thomas Hodgskin wrote his “Labour Defended against the Claims of Capital," and, in 1827, “Popular Political Economy." Hodgskin, a retired naval officer, was a friend of ] Francis Place and a member of the radical circle that gathered round Jeremy Bentham.

He also argued that the labourer should receive the whole of his product, but he included in the term "labourer" the master and the buyer and seller. He accepted commodity-production as the basis of a future society, but wanted to rule out profit. On the question of value, he was not clear. He confused the value of goods with the quantity, and asserted that the more goods there were the greater was the total value, in spite of a proportional decrease in the quantity of labour required to produce them. He also appeared to think that profit and rent were amounts added on to the value of articles.

Although his outlook on this fundamental question was confused, Hodgskin’s destructive criticism of existing society provided the Chartists with useful weapons in their struggle. He did a considerable amount of lecturing, founded with Robertson the “Mechanics' Magazine," in 1823, and was instrumental in the founding of the Mechanics' Institute, where he lectured. He later joined the staff of the Economist and the Morning Chronicle, dropped out of the active propaganda movement, and lived to a ripe old age.

 

After Hodgskin comes John Gray, a successful business man, who delivered a series of lectures on "The Nature and Use of Money," which were published in book form in 1831 and again later in 1848. In these lectures he claimed to have discovered the real source of social troubles, which he attributed to a flaw in the monetary system. He urged that demand should be based upon production, instead of production being based upon demand, which, he claimed, was the basis of the existing system. He proposed to rectify matters by establishing standard banks which would issue credit in the form of transferable vouchers based upon the stock, etc., or, in other words, based upon the powers of production.

So convinced was Gray of the soundness and the magnitude of his discovery that he had his book widely distributed, particularly to economists and universities, and he offered a hundred guineas to anyone who could refute his views. In recent times the Douglas Credit Theory has had a certain popularity, but there is little in the fallacious theories of the Douglas scheme that was not anticipated by Gray a hundred years ago.

Gray's views on value were quite erroneous. He believed that gold was no true measure of value and that there was none. He contended that the scarcity of gold prevented its value from being determined by labour. He, again, took for granted the continuation of commodity-production, but proposed that, in future, labour should be the measure of value. This was to be accomplished by the producer fixing his own price for his product and the competition of producers determining whether this price was right or not!

Gray was, at one time, considerably influenced by the views of Robert Owen, and, in 1815, he managed an Owenite colony at Orbiston.

The last writer we will refer to is J. F. Bray, a journeyman printer and the author of "Labour’s Wrongs and Labour's Remedy," published in 1839. His book is long and very wordy and full of conceptions of justice and equal rights, inspired by the economic analysis of Ricardo. His fundamental proposition is that as the earth is common to all, and labour is the sole source of wealth, each human being has a right to the fruits of his own labour. He claimed that as wealth was produced by labour, the capitalist, who did not work, lived by the legalised robbery of the producer. He claimed further that the problem was the same in all countries, whatever their form of government, and that, therefore, the solution applied internationally. A strain of anarchism runs through his writings, but he made some very apt criticisms of existing arrangements and had very clear conceptions on particular points.

His fundamental ideas, however, clouded his analysis of the present economic framework. He believed that the capitalist made his profit through unequal exchanges—buying goods at their values and selling them for more than their values. For instance, he saw that the capitalist paid the worker for a day’s labour a wage that was only equivalent in value to the product of half a day’s labour, but he did not see that what the worker was paid was the value of his labour-power. He did not realise the implication of his view. He fell into the same error as many before him and believed that value was equivalent to the wages paid to the producer.

Like the rest of the Utopians, Bray believed that the world had been searching for thousands of years for a just form of society and it was now discovered. To him the correct society was the result of knowledge based upon first principles which were true for all time, and could have been established as easily two thousand years ago as to-day.

It will, therefore, be seen that he had no fresh contribution to make to the labour theory of value. On one point, however, he was quite clear and emphatic—that mere governmental changes would not alter the worker’s position. Hence he advocated a complete change in the social basis—but it was not really so complete as he imagined.

To sum up, it may be said that the analysis of value from the point of view of the labour theory begins in 1662 with Petty, and ends in 1817 with Ricardo. Although the Utopians did not further this analysis, they did excellent service in pushing forward the worker’s case, in the course of which they made valuable and biting criticisms of capitalist society. As Marx has pointed out, the kernel of the matter was contained in their outlook, and their attitude logically led to Socialist ideas.

Gilmac.

Notes on Economic History (6) (1961)

From the April 1961 issue of the Socialist Standard

The Physiocratic School

No examination of the ideas of physiocracy would be complete without a reference to those who took up and developed Quesnay's teachings. They called themselves "economites". This school acquired great influence in France. Turgot, one of the members of this group and author of an important work on on the subject of physiocracy (Reflections on the Formation and Distribution of Wealth) was appointed Controller-General of the Finances in 1774. Another of Quesnay's pupils who became political chief of the physiocratic school, was Marquis Victor de Mirabeau, generally known as Mirabeau the elder. Others were quick to espouse physiocracy in the land of its birth.

The physiocratic doctrine soon spread from France to other countries, but mage little impression in England. It had immense in Germany, where Karl Friedrich Margrave of Baden, aided by Schlettween, the most distinguished among the German physiocrats, made an unsuccessful attempt to put in practice the physiocratic principles of taxation. Leopold I, Grand Duke of Tuscany, endeavoured to introduce a "land tax" in his duchy. Joseph II, Catherine, and most of the other monarchs of the period, were affected and influenced by physiocratic ideas. The doctrine found adherents also in Italy, Poland, Sweden and elsewhere.

After Quesnay's death in 1774, dissensions broke out among the French physiocrats, chiefly because of Condillac, who insisted that commerce and industry were "fruitful" as well as agriculture, which was unorthodox to other physiocrats. The disputes that followed paved the way for the collapse of the movement. The dismissal of Turgot from office as a result of the poor condition of the State treasury, the bad harvest of 1775, the rise in the price of bread, and the bread riots all over the country, all helped this collapse.

Finally, the French revolution, bringing the birth of Modern Capitalism to France, relegated the idea of physiocracy to the realm of the past.

The ideas of the Physiocrats did not escape criticism, even in the country of its origin. Of particular interest are the works of Linquet, (Legislation on Trade, 1769) and Necker, (Grain Legislation and Trade, 1775 and the Administration of the Finances of France, 1785).

Linquet, who wrote ironically about conditions of the period, appears to defend chattel slavery against wage slavery, and ridicules all the physiocratic ideas of property. The following quotes from his writing of 1767 illustrate this. The first quotation is the answer to the physiocrats.

It is the impossibility of gaining a livelihood in any other way which forces our day labourers to till the soil whose fruits they will never eat, and our masons to raise buildings in which they will never dwell. It os poverty which drives them to market to dance attendance upon the masters who might wish to buy them. It is this which compels them to kneel before the rich, and to beg of them permission to enrich them.

And on freedom—a boast of the physiocrats:

What is this apparent liberty with which you have invested them? They can live only by renting their hands. They must find someone to rent them or die.

To the economists of his time he said this about the workers.

Do you not see that the obedience, the abjection—let us say it—of this numerous flock, is the wealth of the shepherds? If the sheep who comprise it were ever to lower their heads to the dog who herds them, would they not be dispersed and destroyed, and their masters ruined? Believe me, for his interest, and for your own, and even for theirs, leave them in the persuasion where they now are, that this cur which bays at them has more power itself alone than all they together. Let them flee at the mere sight of his shadow. Every one will be the gainer. You will find them easier to round up for the fleecing. They are more easily kept from being devoured by the wolves. It is true that this is only so they can be eaten by men. But then, that is their lot from the first moment they enter the fold. Before talking of releasing them, overturn their fold, society.

Necker in his work shows that the development of the productive forces if the workers merely permits the worker to devote less time to the reproduction of his own wages and more to the enrichment of his employer. The importance of this is that Necker derives profit and rent, the wealth of the capitalist class, from surplus labour. But he sees it only as relative surplus value, produced not by the prolongation of the working day but by a reduction of the necessary labour time. The following quote from his Administration of French Finances shows the class position of his time.

That class in society whose fate seems as though fixed by social laws is composed of all those who, living by the labour of their hands, receive the imperious law of the proprietors and are forced to content themselves with the simplest necessities of life. Their mutual competition and the urgency of their wants constitutes their dependency; and these circumstances can in no way change.

In assessing the value and place of physiocracy in any history of political economy, we must take into account the economic development of France and other countries where the doctrine was accepted. Physiocracy is first and foremost the ideas of an agricultural economy; it is the philosophy of Feudalism gradually transforming into Capitalism. Its importance fades with the French Revolution.

For us today, physiocracy can be seen as a link in the chain that leads up to, and influences, later economists. Adam Smith was influenced by it, as were several others after him. The Henry George School of modern times is also a reflection of the old physiocrats. The liberal ideas of laissez-faire, freedom of competition, likewise flow from this source.

Finally, its weakness has been shown by Marx in Volume 2 of Capital, as already mentioned in these notes.

Bob Ambridge

Notes on Economic History (5) (1961)

From the March 1961 issue of the Socialist Standard

The Physiocrats

Although the Mercantile system was abundantly criticised, it was a long time before opposition to it became formed into a new doctrine. Such a new system of economic thought arose in France, its chief advocate being François Quesnay. He gave his doctrine the name Physiocracy—the rule of nature.

François Quesnay (1694-1774) was the son of a lawyer. He graduated as a doctor of medicine and became a physician to Madame de Pompadour and Louis XVth, His principal writings are the Economic Tables, 1758, and General Maims, 1758.

Quesnay's teaching is something more than economics; it appears to be part of a general philosophy. Setting out from the materialist notions of his time, he wanted to have social and moral phenomena regarded as being no less "natural" than physical phenomena; and the laws governing the former as well as the latter were to be seen as mechanical laws of nature.

The natural right of human beings in primitive society, he argues was the right to property—that is the right to the free disposal of goods which the individual has made or appropriated by means of his own labour. When at a later stage, men, for the better safeguarding of their natural rights, entered into the social contract, it was essential that they should not lose the right each of them had to earn his own living. Bound up in this right is another natural right of the individual—the right to foster his own economic interest and to shape his own future as best suited to him. This following of self-interest, according to Quesnay, leads to the establishment of a "natural order" in the economic association of human beings.

This doctrine of self-interest was eventually erected by Quesnay into a finished system. He endeavoured to study the laws of the economic "natural order", which were to be deduced by reason from the general plan of nature. This doctrine of "natural order" is important to him for two reasons. First, inasmuch as the pursuit of self-interest is regarded as an idea of natural right, a system of economic individualism is for the first time established. Secondly, the persons who, in their economic life, act consistently because they are guided by motives of self-interest, resemble atoms with fixed properties. The phenomena that result from their mutual contacts (in the market and elsewhere in society) are mechanically determined like those that result from the mutual contacts of the atoms. It follows, says Quesnay, that political economy, like the realm of material nature, is governed by natural laws.

To the question of what activity of the individual it is that regulates the economic machinery, and upon what foundation economic life depends. Quesnay answers—upon natural economic activities, namely agriculture. Agriculture is for him the source of all the wealth of the nation. Not money, trade, traffic and industry, but the tilling of the soil is the true source of public welfare. The former activities merely transform matter and move it from place to place; they are not creative. The agriculturist renders them possible by nourishing those who engage in them, and he supplies the raw material without which they cannot be undertaken. Commerce, industry and transport are to be considered as dependent upon agriculture.

The Physiocrats put the matter thus. The countryman gets hides, leather, and in the end his boots and other articles from his oxen; wood, and in the end his tools, from the trees on his farm; and so on. But, they said, to avoid the wasting of materials and energy, it is better that he should not himself undertake the work that transforms these basic materials, but should have it done for him by various specialists (the tanner, bootmaker, joiner, etc.) whom he must support of his agricultural surpluses.

The only productive, the only creative labour is, therefore, labour on the land. It is true that work which transforms materials derived from land, or moves them from place to place, can enhance the value of these things, but the cost of the supplementary labour is really defrayed by the agriculturist, who must feed the workers who perform it. The increase in value this produced is, therefore, according to the cost of the labour and is equal to the expense of maintaining the workers who do it. Such labour is once again covered and made good by labour on the land. The tanner, joiner, etc. who shape the raw material derived from land work merely earn their own keep in the form of wages; they make nothing new. All they do, says Quesnay, is to "add" not to "create". The agriculturist's work is a work of creation; the industrial workers perform only a work of addition, of transformation, or of transport.

Thus the class of landowners (consisting in those days chiefly of tenant farmers as contrasted with the landowning nobility) appear to Quesnay to be the only "productive" class. The land owners, on the other hand, form an "owning" or "distributive" class, while the industrialists and craftsmen comprise a "sterile" class.

These three classes are considered to be the "active" classes of the population, whilst the wage earners make up a fourth, a "passive" class, with no economic activity of its own.

Agriculture cannot continue to be prosperous, adds Quesnay, unless grain realises high prices, for only then can agriculture provide a large "net product"* and thus become able to provide large incomes for the landowning class, the manufacturers, and the working class, and in this way diffuse general prosperity. It was essential, therefore, to do away with all restriction upon the export of grain—Quesnay completely rejected the mercantilist theory of the balance of trade. The demand for free trade was an inevitable result of his views.

The Physiocratic system also gave a picture of the formation of value and of price. In certain connections Quesnay emphasized the nature of value as utility but with his doctrine of net product, value and price and derived from cost. In his view the transformative labour of industry added to goods only so much value as this labour itself consumed—only an amount of value therefore equivalent to its own cost. It follows from this that for Quesnay wages represent nothing other than the cost of replacement of the labour power that has been expended. Wages are merely the equivalent of subsistence.

Bob Ambridge

* Quesnay uses the term "Produit Nett" as signifying the surplus of the raw produce of the earth left after defraying the cost of its production.

Notes on Economic History (4) (1961)

From the February 1961 issue of the Socialist Standard

Before the Physiocrats

Sir William Petty (1623-1687)

Marx, in Volume 1 of Capital, says: "Once for all, I may add that by classical political economy I understand that economy which since the time of W. Petty has investigated the real relations of production in bourgeois society, in contradiction to vulgar economy, which deals with appearances only".

This is a tribute to the genius and originality of Sir William Petty, the founder of modern political economy. It is in his Treatise of Taxes and Contribution, London 1662, that we find the first idea of surplus value.

Petty distinguishes the natural price of commodities from the market price, the "true price current". By natural price he means value. This is his main point, as the determination of surplus value depends on the determination of value itself. What, then, is value? Petty determines the value of commodities by the relative amounts of labour which they contain; he is concerned not with appearances, but with foundations.

In the following quotation from his Treatise of Taxes and Contributions we get the first definition of value:

If a man brings to London an ounce of Silver out of the earth in Peru, in the same time that he can produce a bushel of corn, then one is the natural price of the other; now if by reason of new and more mines a man can get two ounces of silver as easily as formerly he did one, then corn will be as cheap at ten shillings the bushel as it was before at five shillings, caeteris paribus (all things being equal).

The next quotation from the same work interests us, as it is the early examination of the value of labour;

The law . . . should allow the labourer but just the wherewithall to live; for if you allow double then he works but half so much as he could have done, and otherwise would; which is a loss to the publick of the fruit of so much labour.

In modern words, in receiving for six hours' labour the value of six hours, the labourer would receive double what he receives if he worked for twelve hours and got only the value of six. he would therefore not work more than six hours. Thus the value of labour is determined by the minimum necessary for subsistence. To induce the labourer to produce surplus value and to perform surplus labour, it is necessary to compel him to expend all the labour power of which he is capable, as the condition upon which he may earn the necessities of life.

Petty recognises two forms of surplus value, ground rent and money rent (interest). He divides the second from the first which, for him, as later for the Physiocrats, is the true form of surplus value. He depicts rent not as simple surplus of labour expended over and above necessary labour, but as a surplus, of the surplus labour of the producer himself over and above his wages and the replacement of his capital; as for example the following"

Suppose a man could with his own hands plant a certain scope of land with corn, that is, could dig, or plough, harrow, weed, reap, carry home, thresh and winnow so much as the husbandry of this land requires; and had withal seed wherewith to sow the same. I say that when this man has subtracted his food out of the proceed and given to others in exchange for clothes and other natural necessaries, that the remainder of the 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 make up the cycle, within which dearth and plenties make their revolution, doth give the ordinary rent of the land in corn.

To Petty, the value of the corn is determined by the labour time which it contains, while rent, equivalent to the total product after the deduction of wages and seed, equals the surplus labour represented by surplus product. Rent, therefore, includes profit which is inseparable from it.

Petty also shows that the individual character of the labour is of no consequence. Labour time is what matters.

As a final tribute, and summing up of Petty's contribution to political economy, we quote the following extract from Volume III, of Capital.

Petty . . .  and in general the writers who are closer to feudal times, assume that ground rent is the normal form of surplus value, whereas profit to them is still vaguely combined with wages, or at best looks to them like a portion of surplus value filched by the capitalist from the landlord. These writers take their departure from a condition, in which the agricultural population still constitutes the overwhelming majority of the nation, and in which the landlord still appears as the individual, who appropriates at first hand the surplus labor of the direct producers through his land monopoly, in which land therefore still appears as the chief requisite of production. These writers could not yet face the question, which, contrary to them, seeks to investigate from the point of view of capitalist production, how it happens that private ownership in land manages to wrest from capital a portion of the surplus-value produced by it at first hand (that is, filched by it from the direct producers) and first appropriated by it.

John Locke (1633-1704)
John Locke is probably better known for his philosophy than he is for his contribution to political economy. He follows William Petty in that he regarded human labour as the principal source of wealth, though Petty regarded both labour and land as the important factors. For Locke, nature was out of the prime importance. He believed that the laws of nature established personal labour as the natural limit of private property—the limit arising from the physical limitation on the amount of labour an individual can perform, and from the fact that no one should accumulate more than his needs.

Locke was opposed to the private ownership of land. In his opinion ground rent was no different from usury and, due to the unequal distribution of the means of production, was a transfer from one person to another of the profit that should have been the reward of one man's labour. The following quotation from his Consideration of the Lowering of Interest is an illustration of this:

Money, therefore, in buying and selling, being perfectly in the same condition with other commodities, and subject to all the same laws of value, let us next see how it comes to be of the same nature with land, by yielding a certain yearly income, which we call use or interest. For land produces naturally something new and profitable, and of value to mankind; but money is a barren thing, and produces nothing, but by compact transfers that profit that was the reward of one man's labour into another man's pocket.

Locke's importance is that he is the voice of the juridical theories of capitalist society as opposed to feudalism. His work in philosophy was the basis upon which the thinking of subsequent English economist rested.

Sir Dudley North (1641-1690)
Sir Dudley North is best known his Discourses upon Trade. This is mainly concerned with commercial capital, and as such is outside the scope of these notes. The importance of North is that he reflects in his writing the period in which he lived.

From 1663 to 1798, except for the years 1708 and 1709, wheat prices were falling. Landlords complained continuously about falling rents. Industrial capitalists and landowners were concerned about, and did in fact bring about, a reduction in the rate of interest. Up to 1760 it was considered to be in the national interest to maintain and increase the value of land. From 1760 onwards an economic investigation began into the rise in rents, about the increase in the price of land and corn, and of other consumer goods.

The years 1650 to 1750 were full of struggles between "monied interests" and "landed interests". The landowners gradually lost out to the money lenders and financiers of the period. The financiers, with the establishment of the credit system, and the system of State debt, became predominant in society.

Petty, in his works, refers to the complaints of the landlords regarding the fall of rents. He defended the monied interests against the landlords, and placed the rent of money and rent of land in the same category. North, in his writing, follows Petty. It was in this form that capital gave landed property its first set-back, since money-lending at interest was one of the main means for the accumulation of capital.

North seems to have been the first to understand interest correctly. He included both capital and money in "Stock". On price and money his observation that gold and silver serve not as gold and silver in themselves, but only as forms of exchange value, is, for his day, remarkable.

To sum up, the position of the economists before the physiocrats was that they had to try and understand the conditions in which the landlord was being forced out, to the advantage of finance capital which was growing.

Bob Ambridge

Cooking the Books: Who are the wealth producers? (2011)

The Cooking the Books column from the June 2011 issue of the Socialist Standard

In an article in the Times (2 May) headlined “This belief in making things is make-believe” and subtitled “It is pure fantasy to argue that the solution to Britain’s economic problems lies in boosting manufacturing”, David Wighton argued:

“The idea of the primacy of manufacturing makes little economic sense. It is the modern equivalent of the 18th-century French physiocrats’ argument that all wealth derived from agriculture and everything else was unproductive. Wealth is created by providing insurance on ships, just as much as by making the vessels.”

The Physiocrats did indeed claim that only agricultural work produced a value, in the form of rent, greater than that of the producers’ subsistence. Marx discussed their views in Part I of Theories of Surplus Value where he credited them with transferring “the inquiry into the origin of surplus-value from the sphere of circulation into the sphere of direct production, and thereby laid the foundation for the analysis of capitalist production.”

Their mistake was to conclude that, as the material basis of all wealth came from nature, only the work of those directly interacting with Nature was productive. But manufacturing as well as agriculture transforms materials that originally come from nature – the definition, in fact, of production – and both are capable of producing a surplus (value) over and above the cost of maintaining the producers.

But what about services? Those providing them certainly produce a service but do they also add a value over and above its cost? Marx answered, no. But it was not as simple as that. He accepted that providing these services could bring a profit to a capitalist who invested in them, but the origin of this lay elsewhere, not in surplus value produced by those they employed but in the sector of the economy producing goods for profit. It was the result of a sort of division of labour amongst the capitalist class to ensure that services essential to capital accumulation were carried out as cheaply as possible.

The example Marx gave (in part IV of Volume 3 Capital) was merchants. He explained that if there were no merchants specialising in selling goods then the capitalist firms producing them would have to tie up some of their capital to do this themselves instead of investing it in their core business. There was a price to pay. The industrialists sold their commodities to the merchants at below their market price, i. e. not to realise themselves all the surplus value embodied in them so as to allow the merchants a share in it. The same applies to other services provided for profit such as banking and Wighton’s shipping insurance. The capital invested in providing them does return a profit but from realising a part of the surplus value created in material production.

So, while Wighton is wrong to claim that “wealth is created by providing insurance on ships, just as much as by making the vessels”, he is right to argue that it does not necessarily make sense for a capitalist country to concentrate just on manufacturing. Profits can be made by selling financial services to outside capitalists, so providing an income which can be taxed to help defray the costs of maintaining the state. This has in fact been the strategy of successive governments, whether Tory, Labour or ConDem, since the 1980s. But the origin of these profits is not new value added by those working in these services, but surplus value produced by the industrial workers of the world.

The “many people” Wighton criticises for almost seeing financial services as “a great Ponzi scheme in which money generated from making things is passed around with everyone else taking a cut” are not all that far off the mark.