Say and Ricardo

Theory of income distribution

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8. Theory of income distribution

Say maintained that the problems of value and distribution were of the same nature and therefore had to be dealt with in the same way:

The causes, which determine the value of things, and which operate in the way described in the preceding chapters, apply without exception to all things possessed of value ...; amongst others, therefore, to the productive service yielded by industry, capital, and land, in a state of productive activity. ... [The] relative value [of productive agency], like that of every other commodity, rises in direct ratio to the demand, and inverse ratio to the supply. (T: 314-15)

Therefore, wages, profits and rents are to be explained in terms of demand and supply, where the demand for means of production derives from the demand for products.


Much of what Say has to offer on wages he took from Smith, interspersed with a few ideas of his own. These concern the much acclaimed discussion of the specific role of the entrepreneur as opposed to the capitalist in the process of production and the running of a business (ibid.: 329-32), and Say's conception of the wages of common labour as a form of profits. As opposed to Smith Say did not reserve the concept of profits to human capital as the result of expensive education and training. He argued: 'A full-grown man is an accumulated capital; the sum spent in rearing him is indeed consumed, but consumed in a reproductive way, calculated to yield the product man' (ibid.: 333 note). After this remarkable definition which draws a parallel between the production of commodities and that of men one would expect the investors in this kind of capital to obtain the ordinary rate of return, but this expectation is frustrated: the wages of common labour, Say emphasized, tend to gravitate around an historical and cultural subsistence level, which is taken to be sufficient to maintain also the family of the worker. Say, who again followed Smith closely, provided essentially two reasons in support of this tendency: first, the working of a kind of Malthusian population mechanism which involves a tendency towards an 'excess of population above the means of subsistence' (ibid.: 339); secondly, the advantage masters are said to have over workers in the conflict over wages – in this context Say acknowledged the 'conflicting interests of master and workman' (ibid.: 338). Hence, the real wage rate of common labour may be taken as given – just as in Smith or Ricardo.

We now come to Say's explanation of profits and of rent. Ricardo's argument, as is well known, typically proceeded in terms of the supposition that there is a quality of land in the economy which is cultivated, but not fully cultivated, and which therefore is not scarce and yields no rent (see Ricardo, Works, vol. I: ch. 2). On this quality of land – marginal land – the rate of profit is determined once the real wage rate is known. This was one of Ricardo's analytical devices to see through the complexities of the problem of income distribution and relative prices. Say, as we have seen, in 1815 became acquainted with the Essay on Profits which contained already the essence of Ricardo's theory of distribution, and then with the Principles, and told Ricardo how much he was impressed with the argument and that he was keen to incorporate it in the Treatise. However, when we turn to this work we may begin to understand Ricardo's frustration with the achievements of his admirer. In fact, there is every reason to think that Say had not understood the principle of differential rent and Ricardo's theory of profits. We first turn to the theory of rent.


Appearance has it that the mutual difficulties of comprehension of our two authors started at the linguistic level (see Mahieu 1992: 36-7). However, the real causes were deeper and concerned conceptual and analytical issues. In this context it is interesting to note that Say advised Constancio to translate the title of chapter 2 of the Principles, 'Of Rent', as 'Du fermage ou Profit des terres' (Ricardo 1819, vol. I: 63), thus re-interpreting Ricardo's concept of rent in terms of his, Say's, own concept of 'profit of land'. This undermined one of the declared aims of Ricardo in this chapter, that is, to distinguish as clearly as possible between the rent of land, on the one hand, and the interest and profit of capital, on the other, and thus to overcome their widespread confounding in the literature (see Ricardo, Works, vol. I: 67).24 Scrutiny shows that in the theory of the rent of land and that of mines, as well as in other fields in dispute between them, we encounter an analytically minded Ricardo, determined to lay down the foundations of the new subject of Political Economy, confronted by a Say incessantly pointing towards 'facts' which he deemed incompatible with the economic principles Ricardo sought to establish. Say's criticism concerned first and foremost Ricardo's doctrine that marginal land (the marginal mine), that is, land (the mine) last cultivated (worked), does not yield a rent to its proprietor. In addition he questioned the possibility of distinguishing with sufficient definiteness between land and capital and thus between rents and profits (see, for example, Say in Ricardo 1819, vol. I: 66-7). In the following we shall first deal with Say's critical notes on Ricardo's theory of rent in the French edition of Ricardo's Principles and then turn to the Treatise, in which Say presented his alternative conceptualization.

According to Say Ricardo was wrong in assuming that those portions of marginal land (marginal mines) that are cultivated (worked) do not yield a rent to their proprietors. His reasoning is not always very clear but with some effort and goodwill we might distinguish four objections put forward by him. First, he maintained that capital proper and labour required 'la coopération du sol' which in turn would not be granted without a payment – a 'profit foncier' – to the proprietor of the services of land. Hence, in this view rent is the payment to an indispensable factor of production: 'Can it not be said that the proprietors exercise a productive function, because without it there would be no production?' (ibid.: 92 n.).(14*), 25 Secondly, he argued along the lines of Adam Smith that rent is a monopoly price. This is said to be true both with regard to land (see ibid.: 95 n.) and mines. About the owner of a mine he wrote: 'The proprietor ... has a sort of monopoly which allows him to raise the value of his product above the costs of labour and the interest on the capital that is required to obtain it and bring it to the market. This monopoly price is reduced by competition, but it cannot, I believe, fall to nothing' (ibid.: 112 n).(15*) Unfortunately, Say refrained from telling the reader why competition should be unable to make the rent vanish. In the present context of a discussion of Ricardo's chapter on the rent of mines, that is, exhaustible resources, Say could also have put forward, but did not, an entirely different argument in support of his view that an income has to be paid to the owner of the marginal mine for working it: if he allowed the mine to be exploited without being paid a 'royalty' he would gradually give his asset away without any compensation.26 Yet, a scrutiny of the relevant passages (see, in particular, ibid.: 112-13 n.) shows that there is nothing in Say's reasoning that points in the direction of the concept of royalty.

There is another consideration put forward by Say which, if interpreted favourably, provides some support for his view that the rent of marginal land will generally be positive. This brings us to his third objection. To be clear about one possible source of the disagreement between him and Ricardo we need to recall that Ricardo's no-rent-on-marginal-land argument was based on the implicit assumption that landlords have no use for their land other than renting it out to corn producers. Apparently Ricardo saw no harm in setting aside alternative uses of land, given his aim of providing a clear-cut distinction between rent and profit. An important implication of this assumption is that, in modern parlance, the 'reservation price' of the use of land, that is, that price at which the landlord will choose to retain some positive amount of his land, is zero. This is precisely Ricardo's premise with regard to marginal land. Some of Say's objections, who in this regard again followed closely Smith (see also Béraud 1992: 378-9), could perhaps be interpreted as implying that the reservation price of the land service is generally not zero because there are alternative uses of land. He wrote:

Land is an admirable chemical atelier in which a number of materials and elements combine and collaborate which then leave it in the form of wheat and fruits, from which we obtain our subsistence, of linen, from which we produce our clothes, and of the trees from which we construct our dwellings and ships. ... It is in this way that the fund of land was able to furnish a tenfold, or a hundredfold quantity of useful products to men. (Say in Ricardo 1819, vol. I: 82-3 n.)(16*)

Say's fourth objection was of a similar kind. He argued that whichever plot of land is cultivated is done so because of its characteristic features which distinguish it from all other plots of land available in the economy: 'The land will only be cultivated if the cultivator has been assured of his property; then it is more precious than all the other land of the same quality not yet appropriated' (ibid.: 72 n.).(17*) However, Say was mistaken in believing that this was a fundamental objection to Ricardo's principle of differential rent. The only difference between Ricardo's original formulation and Say's is that whereas the former assumed that there was a finite number of different qualities of land, the latter may be interpreted as maintaining that the number was infinite.27 Whether or not marginal land pays a rent and whether or not there is a continuum of different qualities of land, Ricardo's concept of persistent cost differentials in agricultural production and of differential rent based on them is entirely unaffected by Say's criticisms.

In the Principles Ricardo contented himself with drawing the reader's attention to the fact that Say obviously had overlooked intensive rent: with intensive diminishing returns marginal land may yield a rent to its proprietor: 'By his note to page 182 of the second volume of the French edition [see Ricardo 1819], he [Say] does not appear to be aware that it [the theory of intensive rent] has even been advanced' (Ricardo, Works, vol. I: 412 n.). Having neglected 'that important doctrine', Say is said to be wrong in assuming 'that he has overturned all the conclusions' which result from his, Ricardo's, theory of rent (ibid.).28

Say's 'realism' and anti-deductivism apparently stood in the way of his coming to grips with the principle of differential rent. This can also be seen in the Treatise where Say developed his view against the background of the views of others, especially Destutt de Tracy and Ricardo.29 He wrote:

The tenor of their argument is this: the proprietor of land lying waste or fallow having also a capital to dispose of, may, at his pleasure, expend it, either in cultivation, or in some other way. If he reckons that the cultivation of his land will yield him as large a return as any other investment, he will give it the preference ... Well: and what do they infer from this? Why, that cultivation yields no return whatever, beyond the interest of the capital engaged in it; and if so, what is there left for the profit on the productive powers of the soil? Evidently nothing whatever. (ibid.: 361-2)

The reader, wondering whether this was meant to be a faithful description of Ricardo's theory of rent, is told by Say: 'I have endeavoured to put the argument in the clearest and most intelligible light'. Then follows the adjunct: 'I have to observe upon it, that it proceeds upon a partial and imperfect view of the matter, and upon a total neglect of the influence of demand in the fixation of value' (ibid.: 362). This criticism is taken to clear the ground for Say's own, that is, 'more complete view of the subject' (ibid.).

Before we turn to the latter we shall briefly comment on the above argument. First, Say focused attention exclusively on marginal land. He did not mention once the case of intramarginal, that is, rent-bearing land. He also did not mention Ricardo's distinction between extensive and intensive diminishing returns and extensive and intensive rent. Hence, he did not in the least discuss Ricardo's theory of differential rent, let alone put Ricardo's argument 'in the clearest and most intelligible light'. Secondly, we know from Ricardo that if land of the best quality is available in superabundance there can be no rent. However, if the best quality of land is in limited supply, then the total quantity of corn to be brought to the market matters as regards the price of corn and whether a rent will be paid on land of the first (second, third, etc.) quality of land. Therefore, Say's accusation of 'a total neglect of the influence of demand' does not apply to Ricardo's doctrine. Third, despite the obvious shortcomings and indeed quite incomprehensible misinterpretations in his account, Say has glimpsed an important truth with regard to the nature of Ricardo's theory of value and distribution. In a footnote he wrote, specifying a characteristic feature of Ricardo's explanation of all property income, that is, rent, profits and interest: 'According to these writers, even the interest of capital is not given as the recompense of its concurrence in the business of production' (ibid.: 361n). This is indeed a distinguishing feature of Ricardo's surplus-based approach to the explanation of all shares of income other than wages. Say's claim that 'I have already exposed the fallacy of this opinion' (ibid.) cannot be sustained: simply to contend that profits are the payment for the service of a factor called 'capital' is just that – a contention.30

His 'more complete view of the subject' Say introduced in the following terms: 'The productive power of the soil has no value, unless where its products are objects of demand' (ibid.: 362). Taking this for granted, he went on to argue that then cultivation will begin, yielding 'the usual rate of interest upon the requisite advances.' He stressed:

Up to this point, there is no difference between us [i.e. him and Ricardo etc.]. But if any circumstance operate to aggravate the demand beyond this point [?], the value of agricultural product will exceed, and sometimes very greatly exceed, the ordinary rate of interest upon capital; and this excess it is, which constitutes the profit of land, and enables the actual cultivator, when not himself the proprietor, to pay a rent to the proprietor, after having first retained the full interest upon his own advances, and the full recompense of his own industry. (ibid.)

If by 'this point' he meant the amount of product that can be produced using the cost-minimizing method of production to cultivate the entire amount of land of the best quality, then the question is: what is the difference between Say's position and Ricardo's? Ricardo did not deny that if a larger social demand for corn needs to be met, then the price of corn will have to rise. But he did not leave it at that. He indicated by how much the price will have to rise, due to a rise in cost of production, given the technical alternatives and the quantities of the different qualities of land available to cost-minimizing producers. And he showed that the cost differentials between different methods of producing corn used simultaneously hold the key to explaining the level(s) of rent(s) on intramarginal land(s). He also argued that the rate of profits is bound to fall with a rise in the price of corn and the consequent emergence (or rise) of rent(s), given the real wage rate. All this appears to have escaped Say's attention.

In the sequel Say reiterated his view and stressed: 'herein consists the difference between the profit and the rent: profit is high or low, according to the quantum of the product; rent, according to the quantum of the purchase-money or price' (ibid.: 362). By this formulation he may perhaps have meant to appease Ricardo who had insisted, against the adding-up doctrine, that the price of corn is not high because a rent is paid, but a rent is paid because the price of corn is high (Ricardo, Works, vol. I: 74). This was a corollary of the principle of differential rent. However, the lack of clarity of Say's above formulation and the rest of his argument in the chapter provide sufficient evidence to maintain that he had not understood that principle. We read, for example, that 'rent is generally fixed at the highest rate of that profit' (ibid.: 365). This surprising claim is rationalized in terms of the concept of rent as a monopoly price: 'Landed proprietors ... are enabled to enforce a kind of monopoly against the farmers' (ibid.). And: 'Whenever that is the case, the bargain between the land-holder and the tenant must always be greatly in favour of the former' (ibid.: 366). This essentially carries over Smith's argument regarding the relative strengths of master and workmen in the conflict over wages to the conflict between landowner and tenant over rent. However, Say was wrong in assuming that some concentration of landed property is incompatible with free competition. And free competition is, of course, perfectly compatible with the existence of rent, as Ricardo's theory of differential rent showed.

Interest and profits

Say criticized the old scholastic view of usury and the prohibition of taking interest as based on a lack of understanding of 'the functions and utility of capital' (ibid.: 366) and thus of the function and utility of saving. The interest on a loan of (money) capital is said to be composed of two parts which are not easy to distinguish practically: pure interest and a 'premium of insurance', or risk premium, as an indemnification of the risk the lender incurs (ibid.: 344). The former part is said to consist of 'rent paid for the utility and use of capital' (ibid.: 348) and to depend on: (i) the size of 'aggregate capital' of a nation, which in turn depends 'on the quantum of previous savings'; and (ii) whether there are many or few 'lucrative employments of capital' (ibid.: 349). Say enunciated 'the general and eternal law, that the more abundant is the disposable capital, in proportion to the multiplicity of employments, the lower will the interest of borrowed capital fall' (ibid.).

As regards the profits of productive capital, Say emphasized the 'extreme difficulty' of distinguishing between 'the profit derivable from the employment of capital', on the one hand, and the 'profit of industry' of the entrepreneur, on the other. Smith and the other classical English economists are accused of having neglected the latter distinction: 'they comprise under the general head of the profit of capital, or stock, as they term it, many items, which evidently belong to the head of the profit of industry' (ibid.: 354). We are then told that the rates of profit yielded in different industries depend on 'the relative demand and supply for each mode of employment of capital respectively' (ibid.: 356). But what is capital? Say took issue with the view advocated by Smith and others that labour was the first price, the original purchase-money, for all things. He objected that this omits the fact that there is also paid 'the agency and co-operation of the capital employed'. Yet: 'Is not capital itself, they will say, composed of accumulated products, – of accumulated labour?' Surprisingly he answered: 'Granted', followed by: 'but [sic!] the value of capital, like that of land, is distinguishable from the value of its productive agency; the value of a field is quite different from that of its annual rent' (ibid.: 356). Who has ever disputed this? Of what use are his considerations for an understanding of the factors regulating the ordinary rate of profit? Say appears to have thought that there is a perfect analogy, also reflected in his peculiar terminology, between the 'profit of capital', the 'profit of land' and the 'profit of labour'. He concluded by reiterating his contention that 'the profit of capital, like that of land and the other natural sources, is the equivalent given for a productive service, which though distinct from that of human industry, is nevertheless its efficient ally in the production of wealth' (ibid.: 357). What is perhaps meant by this 'productive service' is alluded to elsewhere in the Treatise, where Say put forward the germs of an explanation of profits in terms of the sacrifices incurred by the saver, his 'forbearance' or, as Nassau W. Senior was to call it, his 'abstinence'. Capital is said to be

the mere result of human frugality and forbearance to exercise the faculty of consuming, which, if fully exerted, would have destroyed products as fast as they were created, and these never could have been the existing property of any one; wherefore, no one else, but he who has practised this self-denial, can claim the result of it with any show of justice. Frugality is next of kin to the actual creation of products, which confers the most unquestionable of all titles to the property in them. (ibid.: 293)

Say did not get much beyond the observation that whoever has accumulated capital is entitled to receive profits. And even if his explanation of interest as a compensation of acts of 'self-denial' of the saver were formulated in a more compelling way, it would, of course, be subject to the usual objections put forward against the abstinence theory. In particular, it is not clear in which relation the interest payments obtained by individual saver-investors stand to their individual and thus subjective sentiments of 'forbearance' and 'self-denial', and whether the accumulation of capital does not also generate feelings of pleasure and happiness. Be that as it may, Say's view of interest is in strict contrast to Ricardo's who focused attention on the productive use made of capital and the surplus left over after all necessary costs of production, including the wages of labour, have been deducted from gross outputs.
9. Concluding remarks

As we have seen, at the beginning of their encounter Say acknowledged Ricardo's authority in political economy which is reflected in a submissive tone towards the author of the Principles. However, already at the time of his notes to the French edition of that book Say, who orginally had expressed his concern with adapting his doctrine in order to gain Ricardo's approval of it, changed his attitude. After Ricardo's death he openly attacked Ricardo and diminished his achievements. Towards the end of a critical review of McCulloch's 'Discourse on the rise, progress, peculiar objects and importance of Political Economy' in the Revue Encyclopédique of 1825 Say wrote about Ricardo: 'I think that his only title to fame is his doctrine of money'. He added: 'Mr. McCulloch will perhaps reproach me for not having communicated earlier my views on Ricardo's doctrines.'(18*) To excuse himself he mentioned that he did not want to 'cause the slightest affliction to a highly recommendable man, who honoured me with his friendship ... . This is the reason why in the notes which the publishers had asked me to append to the French translation of his book I have touched only cursorily the points on which we disagree. But it will perhaps be seen some day from our correspondence that, while I avoided to refute him publically, I nonetheless privately fought some battles with him in the interest of truth.' (Say 1825: 718-19).(19*) Say's more critical stance towards Ricardo is reflected in the fifth edition of his Traité (1826), and at one point he also intended to publish his correspondence with Ricardo but then gave up the plan.31 In his letter to Tooke of 14 May 1825 he explained his change of opinion: 'I have asked Francis Place [the translator] not to consult you with regard to the translation he had carried out of an economic essay and some correspondence between David Ricardo and me ... I became convinced that the moment was ill-suited for such a publication. I gave up the idea of publishing this piece in England ...' (Say 1848: 526).(20*)

In his Cours complet d'économie politique pratique (1828-9) Say was more outspoken and launched a frontal assault on Ricardo. He admitted that the conversations and correspondence he had with Ricardo, 'have obliged me to work out anew these first principles, and have given me the means to present them with a clarity that would probably never have been reached' (Say 1852, vol. I: 113).(21*) However, these improvements did not mean that his position got closer to Ricardo, on the contrary. His major differences with Ricardo concerned the theory of rent (see ibid.: 216-20) and the theory of value. As regards Ricardo's determination of prices in terms of cost of production Say insisted 'that all the productive services are equally suited to all the products' (ibid.: 362).(22*) To the concept of a tendency towards a uniform rate of profits in conditions of free competition he objected: 'This is what I call metaphysical political economy. It has no utility whatsoever, because it cannot provide any guidance in practice'(23*) – because there will never be two pieces of land or two firms absolutely equal one to the other. In a footnote he added: 'David Ricardo, in the third edition of his book, appears to be disenchanted that I did not adopt what he considers to be an important doctrine. It is precisely because I do not consider it important that I have not said anything about it. I only consider important what is useful and applicable' (ibid., vol. II: 68).(24*) And finally, turning to the Ricardian school as a whole, he exclaimed: 'The error of this school is to take each principle too absolutely; and, after having presented it in the form of a theorem, to deduce rigorously consequences which very often do not conform to the facts' (ibid.: 400).(25*)

In one place the author of the Treatise wrote about his analysis of the sources of production and of revenue that it leads us 'into the labyrinth of the science of political economy' (T: 294). If one had to describe Ricardo's analysis in terms of Say's metaphor, one might say that it was designed to show the reader a way out of that labyrinth.

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