Chapter 12: The Classics as Cossacks: Classical Political Economy versus the Working Class
The head of the new school, Mr. Ricardo, has, they say, declared himself that there are no more than twenty-five people in England that had understood his hook. Perhaps he had cultivated obscurity, so that those who understood him . . . had become a sect of adepts with a new language.
— Sismondi, Nouveaux principles d'economie politique
The Scotland of Steuazt and Owen
Robert Owen was a successful cotton spinner. Like others of his trade, he discovered that the creation of a capitalist society in Scotland, or elsewhere, was no easy task. Workers generally resisted "the supervision of labour; fines; bells and clocks; money incentives; preaching and schooling; the suppression of fairs and sports" associated with industrial discipline (E. Thompson 1967, 90). This opposition was especially strong in Scotland. In Owen's (1857, 58) words, the "regularly trained Scotch peasant disdained the idea of working early and late, day after day, within cotton mills."
According to Sidney Pollard (1965, 261), "The Highlander," it was said, "never sits at ease at a loom; it is like putting a deer in a plough." He pointed out that "in Scotland, significantly, people referred to factories as 'public works,' revealing a mental association with workhouses, and migration to factory districts was likened to transportation" (Pollard 1965, 194; see also Kuczynski 1967, 70). Marx pointed out that even Adam Smith interchangeably used the terms "manufactory" and "workhouse" (8o8n). The feeling against factories ran so strong that the father of Richard Oastler, a famous industrialist, sold his business rather than employ the "machine [which] symbolized the encroachment of the factory system," machines that he regarded as "a means of oppression on the part of the rich and of corresponding degradation and misery to the poor" (cited in Thompson 1963, 548, 549).
Given the widespread revulsion created by factory work, employers had to go to great lengths to snatch labor from the depths of the urban centers.
For example, children were sometimes bound to the factory by indentures of apprenticeship for at least seven years and usually until they were twenty-one (Mantoux 1961, 410). "Lots of fifty, eighty or a hundred children were supplied [by the Poor Law authorities] and sent like cattle where they remained imprisoned for many years" (ibid., 411).
Prospective employers had to be quick to take advantage of fortuitous events. David Dale, a famous Scottish cotton lord and future father-in-law of Robert Owen, on hearing of two hundred emigrants shipwrecked on a nearby coast, rushed off to recruit them (Pollard 1965, 261). Dale, like other cotton magnates, eventually found it expedient to create entire villages in order to maintain a labor force (A. Robertson 1971, 150-51; Pollard 1965, 231-42; Collier 1930). Dale's village, located in Lanark County, home of Sir James Steuart, eventually passed into the hands of Owen.
Realizing that opportunities, such as the occasional shipwreck, would be insufficient to staff a modern textile industry, Robert Owen concluded: "Two modes then only remained of obtaining these labourers, the one to procure children from the various public charities of the country, and the other to induce families to settle around the works" (Owen 1813, 26).
In order to reconcile his workers to their condition, Owen established a nursery school for young children and night schools for older ones. He also developed a support fund to take care of the injured, sick, and aged. In addition, workers enjoyed the services of a company-owned savings bank and stores that undersold private dealers (on this latter point, see Ricardo 195I-73, 5:218).
Perhaps because of his enlightened policies, Owen's business was extremely profitable, but his partners were upset that Owen was spending too much on the welfare of his workers. As James Mill wrote to Jeremy Bentham on 3 December 18 13, the partners "had in general got soured with him on account of his endeavours (to which they were averse) to improve the population of the mills" (reprinted in Conway 1988, 31-32). Owen then turned to a group of new investors, including Jeremy Bentham (see Bowring 1962, 466-67).
Soon the relationship between these two unlikely partners also degenerated. By 25 March 1815, Bentham wrote to Owen to request money back from his investment (Conway 1988, 451-52). In a later conversation, Bentham described Owen in unflattering terms: "Robert Owen begins in a vapour, and ends in smoke. He is a great braggadocio. His mind is a maze of confusion, and he avoids coming to particulars. He is always the samesays the same things over and over again. He built some small houses; and people, who had no houses of their own, went to live in those houses— and he calls this success" (Bowring 1962, 10, 570). Owen (1857,95 -96) reciprocated, describing Bentham as a recluse, whose only contact with the real world was through his books and a handful of trusted friends. He claimed that Bentham's friends told him that the investment in New Lanark was Bentham's only successful venture (ibid., 96).
Certainly, Bentham's view of Owen's establishment was in a distinct minority. New Lanark won the admiration of people around the world. Owen's workers seemed to enjoy a better life than the urban proletariat, even though he paid them below the going rate. More important, his factory earned a healthy, but not unusual profit (A. Robertson 1971, 147-48).
Thomas Robert Mai thus offered a different dissenting report of Owen's works. In 1810, he entered into his diary, "About fifteen hundred people are employed at the cotton mill, and great debauchery prevails among them" (Malthus 1966, 233); however, his next sentence describes the thirteen-hour, six-day-per-week schedule. Unfortunately, Malthus supplied no details about the debauchery, which must have been confined to the Sabbath.
Robert Owen's Model of a Humane Economy
Although Owen's community had many progressive features, the workers themselves complained about the paternalism: "We view it a grievance of considerable magnitude to be compelled by Mr. Owen to adopt what measures so ever he may be pleased to suggest to us on matters that entirely belong to us. Such a course of procedure is most repugnant to our minds as men, and degrading to our characters" (cited in Robertson 1971, 150).
One need only follow the course of development of company towns to see the potential for abuse. We can begin with Francis Cabot Lowell, who had originally attempted to re-create what he saw at New Lanark in his Massachusetts textile towns (Dillard 1967, 328-29; Marx 1967, 2:516), including the emphasis on discipline (see Ware 1924, 78-79).
Next we can turn to the town that bears George Pullman's name. The company designed this community to "attract and retain a superior type of workingman, who would in turn be elevated and refined" by the physical setting (cited in Harvey 1976, 283). We could complete our tour with the grotesque system engineered by Henry Ford, with a "staff of over thirty investigators . . . [who] visited workers' homes gathering information and giving advice on intimate details of the family budget, diet, living arrangements, recreation, social outlook and morality" (Flink, 1975, 89; see also Sward 1972, 228-29; Harvey 1976, 277).
To his credit, Owen understood the shortcomings of his village. He attempted to create alternative communities with more self -governance, although the Black Dwarf, a radical newspaper, perceptively denounced his paternalistically planned community as a "nursery for men" (cited in Hollis 1973, 31).
Owen's involvement with the cotton industry educated him in many respects. He recognized that labor was being driven from the countryside much more rapidly than it could be absorbed in the factories. In this regard, Owen seems also to have been influenced by Thomas Spence, whose call for land reform was discussed earlier (Rudkin 1966, 19111.); however, with Owen, the Spencian demands for collective ownership of the land were softened. Rather, he had hoped that the wealthy, including the royal family, would help him in establishing villages that could set labor back to work on the land.
Like Steuart and Spence, Owen realized that the social division of labor in food production was a vital element in the determination of the level of real wages. In a letter dated 25 July 18 17, and published in the London newspapers five days later, Owen (1857, 74) declared, "Value must be restored to manual labour, and this cannot be done except by employment on the land."
Owen designed a plan for villages based on labor-intensive agriculture. He stressed the social, rather than the technical advantages of his plan, calling on the wealthy, and even the government, to invest with him in a program to correct the imbalances in the social division of labor.
Although most of the attempts to put Owen's ideas into practice met with failure, the Ralahine community in County Clare, Ireland, was, in fact, quite successful, even on purely monetary grounds, until its owner gambled away his fortune (Garnett 1971, 47-52; see also Bray 1841, 2:58085). Some members of the royal family were duly impressed.
Of course, a good deal of Owen's idea was by no means novel. Owen himself discovered later that John Bellers, who appeared in chapter 3, had already proposed much of his analysis, as well as much of his solution. Bellers, considered by Marx (1977, 619) to be "a veritable phenomenon in the history of political economy," advocated that capitalists invest in colleges of industry that could educate the poor, teach them industry, and shelter them from earthly cares, although he shrewdly observed that "the labour of the poor . . . [is] the mine of the rich" (Bellers 1696, 164).
And why was profit necessary? Bellers (ibid., 177) answered simply, "Because the rich have no other way of living but by the labour of others." This naive philanthropist hoped to benefit all humanity by virtue of an improved social division of labor in which the cooperation of concentrations of labor would result in a tremendous expansion of productivity. In Bellers's (ibid., 176) words: "As one man cannot and ten must strain to lift a ton weight, yet one hundred men can do it only by the strength of each of them." Bellers may have been the first person to suggest something akin to the modern notion of an efficiency wage, arguing that a decent life for the poor was compatible with a wholesome rate of profit for the rich.
Political economy recoiled from Owen's plan. After all, Owen intended to raise the demand for labor. As Steuart (1767, 1:175) had recognized earlier, increasing the mass of people employed in self-sufficient farming would reduce the number available for the production of the surplus. Steuart had fretted that profits would suffer as a result of a return to spade husbandry. Such honesty was nowhere to be found in later classical political economy. Instead, later political economists lashed out at Owen's scheme as nothing less than an assault on civilization.
A Brief Digression on Land Reform
Subsequent calls for land reform echoed Owen's ideas. In Britain and the United States, workers were in the forefront of the struggle for land reform, even though they might not ever get the opportunity to work the land themselves (E. Thompson 1963, 231, 295; P. Foner 1975, 44-45). The Chartists, for example, even bought up land during the 1 840s to lease back to their members (see Engels 1847; Tsuzuki 1971, 18-19). According to Feargus O'Connor in the 7 June 1845 issue of the Northern Star:
The first use the land would be to them was to ease the labour market of its surplus; the second was to create a certainty of work for the people; and the third was to create a natural rate of wages in the artificial market; for so long as there was a surplus to fall back on, or a warehouse from which to procure labour, so long would work be uncertain and wages low. (cited in Prothero 1969, 99)
O'Connor (1845, 307) had intended that workers could be drawn off into agriculture in such a way that "the number working at each trade (could be adjusted) to the amount of produce required from each as to ensure a healthy settlement of demand and supply."
Unfortunately, O'Connor's perspective was limited. He denounced "communism" as "a fascinating theory [that] . . . opens a wide field for indulgence of the wildest of visionaries" (O'Connor 1848b, 55). He wanted "to make idleness a crime" (ibid., 56). More important, O'Connor looked backward to a system of petty commodity production. In any event, the Chartists's plan failed and the capitalist system continued; so did its intended "screwing and grinding" (Spence 1807; cited in E. Thompson 1963, 805).
Not surprisingly, the left wing of the Chartist movement, as well as Marx and Engels, could not support O'Connor's project, just as they could not endorse Hermann Kriege's land reform activities in the United States (see Draper 1978, 411, 420-25); however, Engels did recognize that a program to give peasants land could be progressive in the context of less advanced economic conditions, such as were found in Germany (see Marx and Engels 1846b, 351-55).
The Chartist plan might have worked to raise the wages of labor in the short run. The case of Mr. R. F. Powell, hired by wealthy philanthropists as superintendent of the Philadelphia Vacant Lots Cultivation Association, illustrates this point (Dudden 1971, 36). As a follower of Henry George, Powell was keenly aware of the extent of vacant land held for speculative purposes in his city, which he estimated to have amounted to one-quarter of the urban area (see Kelley 1906, 306). Mr. Powell helped set almost one thousand families to work raising gardens on these lots. For the especially needy, Mr. Powell would hire them as gardeners at only twelve and a half cents per hour, although the organization would not have suffered a loss, even if the wages had been raised as high as forty cents per hour.
Why were wages set at the lower level? The board of directors of the association, composed of wealthy businessmen, would not allow a higher wage. Powell informed Florence Kelley, the translator of the American edition of Engels's Conditions of the Working Class: "It would make no end of trouble ... if these people were to find that they could earn as much as that they would either leave the factories or demand as much pay there" (ibid., 306).
David Ricardo
Owen's schemes stirred up a great deal of controversy. Classical political economy was drawn into the fray. This dispute is crucial for what it reveals about the attitude of classical political economy with respect to the social division of labor and self-provisioning.
David Ricardo, for one, became a reluctant participant in this wrangling. No one should have expected Ricardo to offer much support to Owen's plan. Although modern commentators often cite Ricardo's words of sympathy for the poor, this sentiment was rather abstract, if not hollow. Ricardo was not at all critical of the attempts of employers "to keep down the recompense to the labourer to the lowest rate" (1951-73, 9:54). In his very first speech to Parliament, he warned his fellow members against being overly tender to the children of the poor, lest such actions encourage the poor to breed more offspring (ibid., 5:1).
In 1818 Ricardo (ibid., 7:359-60) refused to send James Mill a donation for the Westminster Infant School because the children were to be given some dinner:
If it is part of the establishment ... to feed as well as to take care of and educate the children of three years of age, and upwards, belonging to the poor, I see the most serious objections to the plan, and I should be exceedingly inconsistent if I gave my countenance to it. I have invariably objected to the poor laws, and to every system which should give encouragement to excess of population. If you are to feed, clothe, and educate all the children of the poor, you will be giving a great stimulus to a principle already too active.
Even so, while attending a meeting of the Owenites, along with Robert Torrens, Ricardo succumbed to pressure to join a committee to study Owen's proposal. From the beginning, Ricardo was skeptical that the scheme could be administered in the socialistic form envisioned by Owen. As he wrote to his friend, Trower: "Can any reasonable person believe with Owen, that a society, such as he projects, will flourish and produce more than has ever yet been produced by an equal number of men, if they are to be stimulated to their private interest? Is not the experience of ages against him?" (Ricardo 195 1-73, 8:46).
Ricardo's objections were not limited to philosophical speculations on human nature. He charged Owen with the grave error of building "a theory inconsistent with the principles of political economy, and . . . calculated to produce infinite mischief to the community" (ibid., 5:30).
While both Ricardo and Owen argued that the then existing social division was brought about by matters of individual self-interest, Owen interpreted the result to be detrimental to the well-being of labor. Ricardo reasoned on a different basis, assuming that if labor-intensive technologies were beneficial to society, then they would turn out to be more profitable. Consequently, he told Parliament that "as soon as the farmer knew that it was in his interest to pursue a different system, he would adopt it as a matter of course" (ibid., 6:3 in).
Given this position, Ricardo could accept some of Owen's diagnosis, but certainly not his remedy. Ricardo was only willing to go so far as to ascertain if spade husbandry would be more profitable. The market could take care of the rest.
In this spirit, Ricardo (ibid., 5:31) responded to his own rhetorical question: "For what did the country want at the present moment? A demand for labour. If the facts stated of spade husbandry were true, it was a beneficial course, as affording that demand."
Later, Ricardo routinely equated charity with Owenism. For example, in 1819, Ricardo was nominated to a parliamentary committee of inquiry into the Poor Laws headed by William Sturges-Bourne, who proposed to eliminate all poor relief to destitute parents of large families, but advocated providing relief to hungry children on the condition that they be placed in workhouses. Ricardo dissented from this bill, contending that assuring parents "that an asylum would be provided for their children, in which they would be treated with humanity and tenderness . . . was only the plan of Mr Owen, in a worse shape and carried to a greater extent" (ibid., 1, 7).
Ricardo on Horses and Machinery
Despite his outwardly confident attitude about the market, Ricardo was intellectually honest enough to feel the pangs of skepticism. He eventually granted some credence to Owen's concerns in his unpublished Notes on Malthus. There, Ricardo explicitly recognized that an alternative agricultural technology might very well improve the position of the working class, even though it would not necessarily be more profitable to individual farmers:
It might be possible to do almost all the work performed by men with horses, would the substitution of horses in such case, even if attended with a greater produce, be advantageous to the working classes, would it not on the contrary very materially diminish the demand for labour? All I mean to say is that it might happen with a cheaper mode of cultivation the demand for labour might diminish, and with a dearer it might decrease. (Ricardo 195 1-73, 2:239)
Two comments are relevant to Ricardo's (ibid., 2:238) position here. First, Ricardo had already recognized in an earlier note that "diminished [net] production is, in fact, compatible with an increased consumption, by human beings." In terms of agriculture, the sum of the grain consumed directly by the farm workers plus the farmers' profits, measured in grain, might also be higher with spade husbandry than when horses are used, even though profits could be higher when farmers substituted horses for human labor. The fact that Ricardo even stopped to reflect on the possibility of diminished consumption indicates that he sensed something amiss in the marketplace.
Second, Ricardo wrote and then deleted the thought: "This is perhaps the only case in which the substitution of labour for fixed capital, if horses can be so called, is not attended with advantage to the capitalist yet is nevertheless beneficial to the working class" (ibid., 2:239. In other words, the possibility of detrimental effects from the introduction of fixed capital is limited to the case of substituting horses for human labor.
In opposition to Piero Sraffa (1951, i:lix), Samuel Hollander (1971; 1979; see also Maital and Haswell 1977) took the position that a concern about the effect of horses on the demand for agricultural labor did not necessarily lead to Ricardo's later idea that machinery, in general, could operate to the detriment of labor. Hollander's stance has merit for several reasons.
To begin with, a number of writers besides Owen noted the detrimental aspects of horse husbandry. At the time, one horse performed work roughly equivalent to five men (Daunton 1995, 46). Horses also consumed an enormous amount of food that might have otherwise fed farm workers. A single horse typically required an estimated three pecks of oats and a gallon of beans daily in addition to its hay (Ashton 1972, 55). One writer referred to the horse as "the most dangerous moth in the whole web of agricultural economy" (Tatham 1799, 412). We can even find an allusion to this phenomenon in Richard Cantillon (1755, 63).
Other economists found fault with horse husbandry without generalizing their objections to investment in machinery. Perhaps Nassau Senior (1868, 2:43) offers the best example of this phenomenon. Senior suggested that the use of horses might be excessive. However, despite Senior's doubts about horse husbandry, he never accepted the later Ricardian position on machinery. He wrote, "I do not believe that there exists upon record a single instance in which the whole annual produce has been diminished by the use of inanimate machinery" (Senior 1831, 39-40; emphasis in original).
Thus, even though Ricardo seems to have adopted his ideas on machinery only a few months after he made his observations on horse husbandry, we cannot say for certain that one necessarily led to the other. Nor can we ever know with certainty if Ricardo's discussion of machinery was somehow related to Owen's scheme. Ricardo presented his analysis in the form of an abstract principle, absolutely unrelated to any particular point of policy. He claimed to be "not aware that I have ever published anything respecting machinery which it is necessary for me to retract" (Ricardo 1951 731 1:386). Still, he added what might be an admission that he had not treated Owen altogether fairly: "yet I have in other ways given my support to doctrines which I now think erroneous" (ibid.). Could he have had his earlier critique of Owenism in mind?
Horses as a Special Case
Modern economists tend to sweep aside even modest speculations, such as Ricardo's qualms about horses. They presume that the supply of food is not an issue. New employment will come on line naturally, because the superior technology from horse husbandry will drop food prices, thereby expanding aggregate purchasing power. Since the augmentation of purchasing power will increase the demand for labor, labor replaced by horses will merely shift to new jobs. Any reference to the competition between horses and people for food would seem to be irrelevant. This optimistic perspective makes sense only if the displaced workers find alternative employment and earn enough to purchase comparable amounts of food. The experience of modern times does not give much cause for such optimism.
In contrast, classical political economists could regard horses as a special case for two reasons. First, a special model of agriculture colored their perception of the effect of horses. They often built simplified models of agriculture in which the input— grain— and the output— food— are more or less identical (DeVivo 1985).
Where grain is both the input and the output, the explanation that technical change will benefit the workers was not as convincing, especially because classical political economy assumed that wages ultimately depended on a fund, which employers presumably set aside to nourish workers. Moreover, that fund often seemed to consist of the real goods that workers consume. Since horses consumed food that workers might otherwise eat, horses could rightfully be said to diminish the fund.
Second, many people associated the substitution of horses for people with the enclosure movement. The enclosures were part and parcel of a momentous change in the mode of production, whereas the adoption of machinery in general took place within the capitalist mode of production. Thus, the case of horse husbandry may have been assumed to be unique, even though most political economists held that in spite of the suffering engendered by the initiation of market relations, the development of the market would make life better for all in the long run.
We should resist the temptation to add a third reason why Ricardo's discussion of horses might be considered unique: agriculture often seems to be an extremely labor-intensive business compared to the image of the modern textile works that were spreading through the British Isles during the Industrial Revolution. In reality, this impression is misleading— at least Ricardo thought so. He told Parliament on 9 May 1822, that he doubted that agriculture was less capital-intensive than industry (Ricardo I 9S 1 ~73, 577-78; see also Gordon 1976, 139-40). In fact, industry in lateeighteenth-century England was not very capital-intensive at all. The nation spent more money on horseshoeing than was invested in capital in the entire textile industry, even though textile production was the core sector during the Industrial Revolution (Crouzet 1972, 22).
Thus, the uniqueness of the agricultural sector, with grain seen as both an input and an output, might have left Ricardo free to see horses and agriculture as a special case without much relevance for manufacturing.
Economists still debate whether Ricardo was mistaken or not in his machinery chapter. I suspect that part of the reason that this subject has caused so much confusion is Ricardo's inadequate treatment of the depreciation of machinery. Paul Samuelson (1989) gave one of the better readings of this chapter. Perhaps because Samuelson used horses as his example of machinery, he had an advantage over those who thought in terms of machines proper. As a result, Samuelson was able to steer clear of some of the more common errors in interpreting Ricardo theory of machinery.
Ricardo and Depreciation
Ricardo's theory of fixed capital might also explain why he did not consider his theory of horses to be comparable to his theory of machinery. As a background to this speculation, we should note that Ricardo's peculiar notion of capital created a serious flaw in his chapter "On Machinery." Like most economists of his day, Ricardo generally assumed that fixed capital does not depreciate. Instead, he treated fixed capital as permanently productive so long as sufficient maintenance would be performed to keep it intact (Chatfield 1977, 102; Brief 1965).
Yes, I know that sections 3 through 5 of Ricardo's first chapter of his Principles are filled with considerations about the durability of capital, but by the time we get to the chapter on machinery, all concern with durability has fallen by the wayside. Ricardo (1951-73, 8:388) almost admits as much in an 18 June 1821 letter to McCulloch, confessing, "If I have not said whether the machine was to last one, ten, or a hundred years I have not been so explicit as I ought to have been."
We should also note that elsewhere in the Principles Ricardo did allude at times to technological improvements that could cause machines to depreciate through obsolescence. For example, he discussed the case ... of a man who has erected machinery in his manufactory at a great expense, machinery which is afterwards so much improved upon by more modern inventions, that the commodities manufactured by him very much sink in value. It would be entirely a matter of calculation with him whether he should abandon the old machinery, and erect the more perfect, losing all the value of the old, or continue to avail himself of its comparatively feeble powers. (1951-73, 1:271)
Even so, in the chapter on machinery, Ricardo treated machinery as if it had infinite durability. We should not judge Ricardo too harshly for this shortcoming in his analysis. In the first place, he was merely following standard accounting practices of his day. Indeed, the fashion at the time was to treat all overhead costs, such as the original cost of a machine, as unproductive labor (Chatfield 1977, 102). According to one historian of account thought, Richard Brief (1965, 14-15):
The oldest assumption on which accounting practices were based implies that the value of fixed tangible assets remains constant if they are maintained in working order. . . . Under replacement accounting, all expenditures on maintenance, repairs and renewals were charged directly to expense. Expenditures on additions and betterments, i.e., capital expenditures, made with funds provided from the proceeds of stock and bond issues were capitalized. . . . the recognition of depreciation associated with the original plant is delayed until those assets are replaced.
Given this perspective, Ricardo and his contemporaries saw no need to take account of depreciation when discussing machinery; however, this neglect of depreciation significantly weakens Ricardo's treatment of machinery.
In the absence of depreciation, Ricardo's machinery, like his land, somehow becomes endowed with an imagined productivity that lasts indefinitely. Consequently, Ricardo did not count the labor used to produce the machinery as part of the value of the final output in that chapter, since the machinery itself is unchanged in the course of production. Given that setup, Ricardo only had to take the labor used to maintain the machine as a cost.
Why would Ricardo, the premier economic theorist of his day, fail to go beyond the crude capital theory of his day in his chapter on machinery? Why wouldn't he have integrated his observations about technological obsolescence into his more theoretical analysis?
Although there is no way to know Ricardo's thoughts on this matter, let me offer a conjecture. Ricardo's inconsistent capital theory may not be an indication of confusion on his part. Instead, it may reflect the depth of his understanding of capital theory.
Ricardo's allusions to the need to take account of the depreciation of capital suggest that he saw the deficiencies of the naive capital theory of his day. At the same time, Ricardo's sophistication might well have made him aware of the impossibility of a precise theory of depreciation within the context of economic models.
If Ricardo had attempted to come to grips with the concept of depreciation, he would have been swamped by the complexity of the subject. In fact, no economic model has ever introduced an even remotely realistic treatment of depreciation. The reason is not hard to fathom.
The rules of thumb that accountants use are inadequate for a theory of economics that purports to show how profit maximizing outcomes arise. Depreciation, however, requires that the theory confront the unknowable future.
For example, the depreciation of a capital good depends, among other things, upon the economic lifetime of that equipment. Most firms do not discard capital goods because they wear out. Instead, conditions change, making the good uneconomical. If the firm scraps the good in a year, it will have to depreciate it completely within that period. If the good lasts ten years, then the depreciation will be more gradual.
Each subsequent replacement will be affected by the expectation of later replacements in the still more distant future. A profit maximizing investor will generally require foreknowledge of the date of the introduction of the next generation of capital before making that replacement decision. As Joseph Schumpeter (1950, 98) once wrote:
Frequently, if not in most cases, a going concern does not simply face the question whether or not to adopt a definite new method of production that is the best thing out. ... A new type of machine is in general but a link in a chain of improvements and may presently become obsolete. In this case it would obviously not be rational to follow the chain link by link regardless of the capital loss to be suffered each time. (1950, 98)
Economists briefly looked at the incredibly difficult requirements for a realistic theory of the economic lifetime of capital toward the end of the Great Depression (see Preinreich 1940), but the demands of such a theory were so great that nobody dared to take up the challenge. Since depreciation depends on the economic lifetime of a capital good, analysis of depreciation requires a parallel analysis of expectations. Economists still have no adequate theory for expectations.
Just as Adam Smith built his theory to show that the market created a harmony of interests between the small masters, their workers, and the rest of society, modern economists construct their theory to show why market forces lead to the most efficient possible outcome. As a result, they avoid the theory of depreciation. This practice is part of a larger tendency to deny that accidents, ignorance, or anything else except intrusive government could cause an economy to wander off a path of maximum efficiency. Realism in such matters is a trivial consideration.
To have expected a Ricardo to have mastered the intricacy of a theory of depreciation a century and a half ago is wildly unrealistic. Ricardo was, above all, a master of making his models analytically tractable. Just consider how cleverly he eliminated any consideration of rent from his value theory. So while realistic comments about the realities of depreciation crept into his book, Ricardo was careful to avoid any examination of depreciation when it could threaten to garble the message of his theory of machinery.
Here we see that horses differ from Ricardian machinery in still another sense. The idea of an undepreciating horse is utter nonsense. Horses are not immortal. Despite the best care and maintenance, all horses eventually succumb to injury, disease, or old age. Thus, "horse capital" falls somewhere between Ricardo's notions of fixed and circulating capital, although a large enough farmer could theoretically have an undepreciating herd of horses— at least in an actuarial sense.
Ricardo and Machinery
The core of Ricardo's famous chapter analyzed conditions by which the introduction of labor-saving techniques in industry could harm labor. He even went so far as to speculate in a letter to John R. McCulloch that "if machinery could do all the work that labour now does, there would be no demand for labour" (Ricardo 1951-73, 8:399-400). Under this assumption, "Nobody would be entitled to consume who was not a capitalist, and who could not buy or rent a machine" (ibid.).
Ricardo offered the observation that "the labouring class have no small interest in which the net income of the country is expended, although it should, in all cases, be expended for the gratification and enjoyments of those who are fairly entitled to it" (ibid., 1:392). A few paragraphs later, Ricardo (ibid., 394) noted that wages could fall with the cessation of war if the wealthy people devoted their funds for "the purchase of wine, furniture, or other luxuries." In effect, he seems to have given labor the implicit right to have some say in how the wealthy classes spend their money, although he gives no indication that the working classes have any comparable right to question the distribution of wealth.
What do the consumption patterns of the wealthy have to do with the policy issues raised by the machinery model? After all, the substantial dislocations following the end of the Napoleonic Wars were too great to be explained by excessive purchases of luxuries. The mere mention of this period, however, seems to suggest an important policy dimension to the model.
In the next paragraph, Ricardo (ibid., 394) returned to the possible detrimental effect of the use of horses, again suggesting that his model was intended to be more than an abstract exercise:
There is one other case . . . the possibility of an increase in the net revenue of a country, and even of its gross revenue, with a diminution in the demand for labour, and that is, when the labour of horses is substituted for that of man. ... to substitute the horses for the men . . . would not be for the interest of the men, and ... it is evident that the population would become redundant and the labourer's condition would sink.
In other words, while machinery in general may be harmful to labor, the effect is far more dramatic in the case of horse husbandry because gross output and labor demand can fall together.
Rather than continue with this line of reasoning, Ricardo undercut any policy implications of his model in the following paragraph. He pointed out that his model only referred to the sudden improvement of machinery, whereas in reality, technical change is gradual (ibid., 395). Of course, sudden improvements in technology are inconsistent with Ricardo's static theory of value.
Ricardo further downplayed the relevance of his finding by implicitly arguing that machinery could not do a great deal of harm to workers, since the introduction of machinery would not be economical unless wages are high. Even high wages would not necessarily lead to the widespread introduction of machinery. For example, according to Ricardo, machinery was not economical in American agriculture because land was so abundant there (ibid., 395). Of course, the intensive use of agricultural machinery was soon to become a hallmark of agriculture in the United States.
The Corn Laws in England
Even if Owen's proposal were peripheral to Ricardo's theoretical activities, the question of labor-intensive agriculture was a hot political topic at the time. Parliament was actively enforcing a controversial policy that was discouraging labor-intensive agriculture: namely, the infamous Corn Laws.
In the first half of the eighteenth century, Britain was the granary to a large part of Europe, exporting an amount sufficient to feed one-quarter of the British population (B. Thomas 1985, 140-41). With the combination of population growth coupled with the process of primitive accumulation, the British economy became increasingly dependent on imported grain. In this respect, Hussain Athar and Keith Tribe (1981, 28) observed: "One may note that it was in Britain— the country with no peasantry and a country with a developed capitalist economy— that the largest contraction in cultivated area as a result of international competition occurred."
At the time, most economists attributed this trend to comparative advantage— the idea that Britain could specialize in manufacturing, leaving food production to the periphery. However, more recent history has shown that industrialized nations can also be major food exporters. In this light, the weakening of the traditional system of food production (including the greater concentration on livestock), associated with the process of primitive accumulation, was probably the major cause of the contraction of British grain production.
According to the conventional wisdom, the Corn Laws should have increased the demand for agricultural labor. Boyd Hilton (1977, 120) even insists that the Corn Laws expanded the demand for labor in general. He reasons that even if higher bread prices had restricted the demand for industrial labor, prior to the 1820s, this diminution would have been more than offset by the greater amount of labor employed in agriculture.
Following this reasoning, the Corn Laws increased domestic agricultural production because they impeded access to imported produce. In addition, the labor demands per bushel of domestically produced grain were supposed to be high on marginal lands. In effect, Ricardo himself appealed to the higher labor costs on marginal soil in constructing his theory of comparative advantage, which he used to argue against the Corn Laws (Ricardo 1951-73, ix chap. 7). Some defenders of the Corn Laws also pointed to the extra employment that import restrictions offered to justify their opposition to the repeal of the Corn Laws (B. Hilton 1977, 125). The Northern Star repeated this line as late as 1840 (see Hollis 1973, 280-81).
In truth, this argument is not necessarily valid. Judging from the experience of the United States, many agricultural economists have claimed that price supports can actually result in lower long-run prices. The initially attractive investment climate stimulates the long-term technical change that can eventually bring about substantial cost reductions for those with adequate access to capital (see Nelson and Cochrane 1976). Indeed, James Anderson and some of the supporters of the earlier Corn Laws had justified the legislation in similar terms (see Anderson 1777a; Hollander 1979, Appendix C), as did the British government in 1815 (B. Hilton 1977, 112).
We should also take account of the type of farmers who were attracted to the highly capital-intensive project of draining marshland for agricultural purposes. In the case of these improvements, Ricardo's interpretation of capital as permanently productive, which is generally inappropriate, might be partially justified. Once these investments were in place, much of the previously marginal land could remain highly productive. These operations would not necessarily use more labor than the typical, less-capitalized wheat farm. In fact, many of these farmers were in the forefront of agricultural improvement. The abolition of the Corn Laws might well reduce the domestic acreage used for grain, but many, if not most of these improved lands were likely to remain in production.
In terms of elementary economics, the sequence of introduction and repeal of the Corn Laws probably shifted the agriculture supply curve to the right. Consequently, these farms may have actually used less labor than the average wheat farm. Accordingly, the Corn Laws would not create as much employment as might be expected.
In fact, I suspect that the Corn Laws actually reduced the demand for agricultural labor because of their negative effect on labor-intensive farming. Of course, the demand for (agricultural) labor and the vigor of laborintensive agriculture are not identical. I will argue that, by reducing the viability of small-scale farming, the Corn Laws increased the amount of labor working for wages while expanding the extent of unemployment.
The Corn Laws and Small Farmers
The Corn Laws had a negative effect on agricultural employment in one significant respect. Grain uses relatively little labor compared to most crops. In addition, grain farming requires much more seasonal labor than most small-scale farming does, especially since the typical small-scale farmer adopted a system that included several crops in order to spread labor over as long a period as possible. Although the Corn Laws may have increased employment in grain production, a complete measure of the impact of the Corn Laws must include the consequences for more laborintensive crops as well as grain.
Labor-intensive agriculture was significant in the early days of classical political economy. Market gardening grew rapidly in the late sixteenth century (Thirsk 1967b, 196). By 1649, members of the London Gardeners Company employed 1,500 people and 400 apprentices, an average of 6 employees and 1 or 2 apprentices apiece (Thick 1985, 514). Wealthy people also had their own private gardens (ibid., 504). Gregory King estimated that the English ate more fruit and vegetables than the Dutch. Others thought that they also consumed more than the French (ibid., 508).
By the early eighteenth century, England had developed an advanced system of labor-intensive farming and gardening. English public houses served vegetables, such as broccoli, at a time when they were rare in France (George 1953, 80). Although France had a reputation as the leader in market gardening, England seems to have been ahead of France in such techniques as forcing cauliflower and asparagus under bell glasses.
During the early Corn Law debates, market gardening usually was a small-scale, but often successful enterprise. Most observers at the time understood that small-scale farmers had a competitive advantage in such vegetables and dairy products, whereas larger farmers tended to be more competitive in the production of grain (H. Levy 1966, 6-7).
For the most part, large farmers had no interest in producing specialty crops. As primitive accumulation accelerated, many small farmers disappeared. As a result, according to Nathaniel Kent: "Formerly they [the laborers] could buy milk, butter, and many other small articles in every parish, in whatever quantity they wanted. But since small farms have decreased in number, no such articles are to be had; for the great farmers have no idea of retailing such small commodities, and those who do retail them carry them to town" (1775, 238; see also 213-14). In addition, the imposition of duties made grain far more lucrative relative to fruits, vegetables, and livestock (Kautsky 1899, 149; Marshall 1920, 162; Senior 1928, 1:243). Consequently, the tariff on grain shifted production toward grain and away from meat, dairy products, fruits, and vegetables (Athar and Tribe 1981, 40).
The decline in the production of specialty crops occurred even though the English climate was particularly well suited to activities, such as dairy and vegetable production (see Senior 1928; 1:243). Conversely, with the later fall in grain prices after the abolition of the Corn Laws, England witnessed an acceleration in the rate at which resources were channeled into the market gardening industry (Bearington 1975, 39). However, this later English market gardening differed from the earlier variant. It tended to operate on a rather large scale. It also relied heavily on migrant labor (Bearington 1975,Samuel 1973).
The Corn Laws were doubly effective in turning the terms of trade against small-scale production. First, this legislation directly encouraged grain production, contributing to economies of scale in farming. Second, because the typical small-scale farmer had to purchase grain for personal consumption, the Corn Laws directly struck at the economy of smallscale agricultural production.
We can see this dependence of small-scale agriculture on cheap grain in France, where wine growers often rioted over the high price of grain (see Rude 1980, 64). Flanders offers an even more striking example. There, purchases of grain allowed farmers to devote a maximum of land and time to the higher-priced crops. B. H. Slicher van Bath (i960, 136-37) estimated that a nineteenth-century Flemish family could sustain itself with a mere one and a half acres of flax. The output of such a farm was not insignificant. Alexander Hamilton once observed that in a good year, one-half acre of flax land could supply the needs of the entire state of Connecticut at the time that the greatest quantity of flax was being used (Cole 1968; see also Tyron 1917, 207). Nonetheless, such enterprises still required cheap grain in order to make ends meet.
Consequently, the Corn Laws turned the terms of trade against the small-scale farmer, possibly encouraging, we might add infractions against the Game Laws. Moreover, by raising the cost of hiring labor during the harvest or planting season, the Corn Laws either reduced the profits of farmers or forced them to adopt labor-saving technologies.
Even with the Corn Laws, British agriculture did remain labor-intensive enough that many British farmers continued to use sickles instead of scythes, despite the fact that the sickle required much more labor (Collins 1969). Still, British agriculture was far less labor-intensive than that of the Low Lands of Europe.
Students of southern agriculture in the United States after the Civil War discovered a similar phenomenon. As the average size of farms began to shrink, small farmers had no choice but to grow cotton instead of corn. Although cotton production entailed much more risk, farmers could hope to survive only by adopting a strategy of buying corn in order to have more resources to devote to their cash crop (see Wright 1978, 169). Consequently, higher corn prices would tend to work to the disadvantage of those farms that were too small to market grain.
In conclusion, the higher grain prices worked against many parts of the English agricultural system. In this regard, Hussain Athar and Keith Tribe wrote: "That the benefits for grain duty were very unevenly distributed was widely recognized and not just by agronomists. For instance Count Hohenlohe stated in 1895 that holdings under 12 hectares (i.e. 87 per cent of holdings according to the 1895 agricultural census) had no corn to sell, and in a large number of cases they were even net buyers of corn" (Athar and Tribe 1981, 32; referring to Ashley 1920, 62). Except for a brief comment by Marx (1845, 289), in which he noted that the effect of the Corn Laws was "to convert the peasants into the very poorest proletarians through high rents and factory methods of exploiting landed property," economists seemed to be oblivious to the connection between the Corn Laws and the scale of farming. Instead, they treated agriculture as if it produced a homogeneous output of wheat. Similarly, they failed to recognize the different economies of largeand small-scale agriculture. Robert Torrens appears to have been the only classical political economist even to mention the importance of the terms of trade within agriculture. He remarked:
The moors of Lancashire could not have originally have been made to grow corn, because the quantity of corn consumed by the labourers reclaiming and cultivating them, would have exceeded the quantity they were capable of producing. But cheap corn was brought from Ireland and other places,increasing wealth and population created an intense and extensive demand for these agricultural luxuries, which, not entering into the subsistence of farm labourers, are not expended in reproducing themselves,and the consequence has been that what was the barren moor, now bears crops of great value, and pays higher rents than the most fertile corn lands in England. (Torrens 1835, 279; cited in Robbins 1958, 47)
Torrens was evidently satisfied with himself in having made this theoretical advance beyond Ricardianism. He repeated it word for word in his Three Letters to the Marquis of Chandos on the Effects of the Corn Law on the Budget (1839) and in The Budget (1842) (see Robbins 1958, 47). A somewhat similar line of reasoning is found in a letter he wrote to the Bolton Chronicle (Torrens 1833, 33). However, neither Torrens nor any of his colleagues bothered to take it any further.
In conclusion, we could interpret the Corn Laws as a measure primarily designed to help the larger farmers who marketed the majority of their produce at the expense of small ones. As a result, the shift to grain production probably meant a fall in aggregate agricultural employment.
Someone familiar with the literature of classical political economy might be tempted to interject here, "Wait a minute! Didn't the classical political economists oppose the Corn Laws?" I would have to respond, "Not exactly."
Only after the Corn Laws had served their purpose in manipulating the domestic labor market, did the British economists abandon them in the name of freedom of the market. Two strategic concerns caused this shift. First, now that British manufacturing had taken hold, they thought that the acceptance of imported grain would help to convince other nations to accept British manufactured goods, creating a more favorable international social division of labor, as we saw in chapter 4. Second, they thought that manufacturing would benefit from cheap food. As we shall see in the case of David Ricardo, however, this interest in cheap food was conditional.