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Published online by Cambridge University Press: 07 November 2014
Considerable difficulty is presented for students of classical economics by the ambiguous use of the term “capital.” In particular there is much room for debate concerning the importance of technological capital as distinct from wage-goods capital in classical economic literature. This problem exists in the Wealth of Nations as well as in the work of Adam Smith's successors.
Malthus was quick to point out that serious error may result from Smith's analysis of wages wherein “every increase in the stock or revenue of the society” is regarded as “an increase in the funds for the maintenance of labour.” More recent writers recognize the references to “fixed capital” but imply that mere Up service was paid to such items; the emphasis was predominantly upon wage goods. In particular, it has been argued, Smith emphasized “the superior physical productivity of time-using processes” and the requirement that subsistence goods be available to permit the adoption of such techniques. “These accumulations are the simplest form of capital; machinery, tools, stocks of all sorts and human skill and knowledge are simply more complicated forms.
Perhaps the strongest criticism is by Marx. Marx did not deny that “constant” capital makes an appearance in the Wealth of Nations, but, he argued, it does so only at the micro-economic level of analysis: “Adam Smith, by a fundamentally perverted analysis, arrives at the absurd conclusion, that even though each individual capital is divided into a constant and a variable part, the capital of society resolves itself only into variable capital, i.e., is laid out exclusively in payment of wages.”
L'ambiguité de la notion de capital soulève de nombreuses difficultés à ceux qui étudient l'analyse économique classique. On peut débattre longtemps, en particulier, de l'importance de la distinction entre le capital technologique et le capital de biens de consommation (wage-goods). La difficulté se présente dans The Wealth of Nations aussi bien que dans les ouvrages postérieurs à Adam Smith.
La principale thèse de cet article est à l'effet que quand Smith s'en rapporte au « capital », non seulement suppose-t-il que d'autres facteurs, à part le travail, sont nécessaires dans la fonction de production, mais il implique plus précisément que ces facteurs, la technologie étant donnée, doivent être combinés dans des proportions constantes. Il est intéressant de connaître comment cette hypothèse en est venue à être introduite dans la littérature économique. Il semble que l'hypothèse reflétait les vues de Smith sur la technologie d'un univers concret.
La portée de cette hypothèse est particulièrement importante. L'absence de substitution a déterminé, dans une certaine mesure, la nature des innovations que Smith a envisagées et a minimisé la possibilité des déplacements d'origine technologique des travailleurs. L'on jette un peu de lumière sur la proposition classique à l'effet que « la production (industry) est limitée par le capital ». Enfin on verra qu'une analyse de la théorie de l'emploi de Smith qui ne serait faite qu'à partir du fonds des salaires peut induire en erreur.
L'article examine également dans quelle mesure le système de Ricardo repose sur l'hypothèse de complémentarité, en particulier son modèle théorique de base de la répartition qui comprend la mesure conceptuelle de la valeur. A notre avis, le fait que Ricardo n'ait pas modifié son modèle, à la suite des relations de substitution qu'il a introduites dans son chapitre « On Machinery », résulte d'une conviction méthodologique chez lui, conviction qui met l'accent sur la capacité de prédiction d'un modèle plutôt que sur le réalisme de ses hypothèses. Nous prétendons aussi que les prévisions concrètes de Ricardo sur le déclin séculaire du taux de profit, impliquant une évaluation qualitative des tendances opposées du monde réel, auraient été moins convaincantes s'il avait en général reconnu des proportions variables de facteurs.
I am indebted to Professors W. J, Baumol, V. W. Bladen, D. M. Nowlan, and G. Slasor and to Mr. J. A. Hutcheson for helpful comments. Research on this paper was financed with funds made available by the Canada Council.
1 All page references will be to Smith, Adam, The Wealth of Nations, Modern Library ed. (New York, 1937).Google Scholar
2 Malthus, T. R., An Essay on Population, vol. II, Everyman's Library (London, 1961), 126.Google Scholar
3 Bowley, Marian, Nassau Senior and Classical Economics (London, 1937), 138.Google Scholar
4 Marx, Karl, Capital, vol. I, Modern Library ed. (New York, 1906), 647.Google Scholar
5 Cannan, Edwin, A History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848, 3rd ed. (London, 1924), 85.Google Scholar
6 An examination by the present writer of these propositions, as expressed by Mill, appears in “Technology and Aggregate Demand in J. S. Mill's Economic System, this Journal, XXX, no. 2 (May 1964), 175-84.
7 The reader may refer for a discussion of this aspect of the contrasting treatments of new technology by Smith and Ricardo to Lowe, Adolph, “The Classical Theory of Economic Growth”, Social Research, vol. XXI (Summer 1954), 127–58.Google Scholar
8 Further important references to the problem of factor proportions occur on pp. lviii 317, 334, 341 ff., 421.
9 Wealth of Nations, 86.
10 Evidence supporting this view is presented in Pollard, Sidney, “Fixed Capital in the Industrial Revolution in Britain,” Journal of Economic History, XXIV (09 1964), 299–314.CrossRefGoogle Scholar
11 Cf. Stigler, George J., The Theory of Price, rev. ed. (New York, 1952), 106–10.Google Scholar
12 Cf. Wealth of Nations, 219 S. It appears from the context that the unit of land hired from the landlord did not coincide with the technological unit. The area hired would characteristically be divided into several technological units and to the extent that the farmer added to his capital resources—in particular manure—further technological units would be cultivated.
Elsewhere, in a discussion of taxation, Smith again implies that variations in intensity of cultivation were not envisaged although here no distinction is drawn between the unit of land hired and the technological unit: ”But when a tax is imposed upon the profits of stock employed in agriculture, it is not the interest of the farmers to withdraw any part of their stock from that employment. Each farmer occupies a certain quantity of land, for which he pays rent. For the proper cultivation of this land a certain quantity of stock is necessary; and by withdrawing any part of this necessary quantity, the farmer is not likely to be able to pay either the rent or the tax.” (807)
13 For this view see Sraffa, Piero, Production of Commodities by Commodities (Cambridge, 1960), v–vi Google Scholar, and the reference to P. H. Wicksteed's objections to the use of the term “margin” in the context of differential returns owing to land of different qualities.
14 For a recent discussion of Smith's treatment of specialization see Jacob Viner, Introduction to Rae, John, Life of Adam Smith (New York, 1965), 103 ff.Google Scholar
15 Wealth of Nations, 4.
16 Ibid., 8.
17 Ibid., 4–5.
18 There is an important exception to this “rule” examined by Smith, where new technology is embodied in simplified equipment. In this case the release of maintenance-labour and maintenance-materials in the production of given levels of output is permitted. (See ibid., 271–2, 276, 280.)
19 See in particular ibid., 9, 86, 260.
20 For example we read: “The owner of the stock which employs a great number of labourers, necessarily endeavours, for his own advantage, to make such a proper division and distribution of employment, that they may be enabled to produce the greatest quantity of work possible. (86)
21 A number of instances may be given. Specialization is uncommon in agriculture because “it is impossible that one man should be constantly employed in any one of [the operations required]” (6). But unless the fanner were under an obligation to pay each man for more hours than are required of him, there is no reason to avoid the specialized processes since the employer could pay only for the man-hours of labour required. Smith also contrasts the cottar system wherein cottagers “were not fully occupied in one occupation” (117) with more “recent” systems in which the worker earned most of his wages in a single occupation. The wages of the cottagers were relatively low because household manufacture was not “the principal business from which any of them derived the greater part of their subsistence” (246–7). Cottage work is cheaper than “that which is the principal or sole fund of the workman's subsistence” (247). Thus generally actual earnings would not be related to hours of effort exerted: “A man must always live by his work, and his wages must at least be sufficient to maintain him” (67). Furthermore, and of greater interest, consider the numerous references to the need for additional “capital” as a prerequisite for specialization: “When the work to be done consists of a number of parts, to keep every man constantly employed in one way, requires a much greater capital than where every man is occasionally employed in every different part of the work” (326; my stress). Such statements imply that the employer is concerned in keeping his workers fully employed which would be the case only if the labourer must be treated as a fixed cost item.
In addition to the cottagers, Smith refers to “independent workmen,” “journeymen who work by the piece,” (83) and to “servants who are hired by the month or by the year, and whose wages and maintenance are the same whether they do much or little” (84). Some statements do not fit in well with our interpretation: Smith refers, for example, at one point to “workmen [who] are paid by the piece; as they generally are in manufactures …” (82). On balance, however, the evidence suggests that Smith in fact regarded the specialist operators in the complex processes as constituting fixed cost items or rather “indivisibilities.”
22 This possible solution is also suggested in the case of J. S. Mill. See note 6.
23 Smith's, introduction, Wealth of Nations, lviii.Google Scholar See also pp. 278 ff. and 317 ff. where the limits imposed on the employment of productive (“useful,” “industrious”) labour are discussed further.
24 See also ibid., 639. The work of “unproductive” labourers “consists in services which perish generally in the very instant of their performance. …”
25 Ibid., 839 and 879 respectively.
26 For an identical treatment by Mill, J. S. see, for example, Collected Works of John Stuart Mill, vol. II, Principles of Political Economy (Toronto, 1965), 412.Google Scholar
27 Furthermore, the fact that materials are included in circulating capital (together with wage goods) in Smith's classification must not be forgotten. In the classification used by Marx, on the other hand, “variable” capital consists solely of wage goods (Capital, 233). The careless identification of “circulating” with “variable” capital may lead to a misleading interpretation of Smith.
28 Wealth of Nations, 321. See also pp. 316, 319.
29 Sraffa, P., ed., The Works and Correspondence of David Ricardo, vol. I, Principles of Political Economy (Cambridge, 1951), chap. xxxi.Google Scholar
30 See in particular ibid., chap, v: “On Wages,” and chap, vi: “On Profits.”
31 On these topics see particularly ibid., 132–3, 215 ff., 289 ff.
32 For a discussion of the properties of “gold” see ibid., 44ff. Ricardo in fact sought a commodity (“gold”) possessing technical coefficients which were a mean of those in the economy as a whole. There may, therefore, be several industries within each broad sector, but the “representative” industry would possess technical coefficients similar to those in gold production. The assumption that gold possesses the “mean” coefficients was introduced to avoid the problem that changing input prices affect commodities differently depending upon their relative factor intensities. The assumption is tantamount to assuming that input ratios do not differ from sector to sector, that is between the measure and the “commodities” to be measured, namely agricultural produce and manufactured produce.
33 In a recent mathematical formulation of the Ricardian system it is assumed that only circulating capital is used “of a one-year period for all processes.” This assumption, it is admitted, “is too restrictive. As a matter of fact, it may be dropped and fixed capital introduced into the analysis … provided that the somewhat more general restriction is kept of supposing that all the sectors of the economy use fixed and circulating capital of the same durability and in the same proportions. This is indeed the crucial assumption: the determinateness of the whole Ricardian system itself depends on it, in an essential way.” Pasinnetti, Luigi L., “A Mathematical Formulation of the Ricardian System,” Review of Economic Studies, XXVII (02 1960), 91.Google Scholar
34 Principles, 48–9.
35 Ibid., 104.
36 Ibid., 126–7.
37 Letter dated 14 Oct. 1819 in Sraffa, , ed., Works, vol. VIII, 108.Google Scholar
38 Letter dated 9 Nov. 1819, ibid., 130.
39 Letter dated 13 June 1820, ibid., 194–5.
40 Cf. Schumpeter, Joseph A., History of Economic Analysis (New York, 1954), 651 ff.Google Scholar