Ricardo and the History of Japanese Economic Thought

Susumu Takenaga

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317283232
• Edition: 1
• Topic: Economia
• Subtopic: Teoria economica

David Ricardo's theories were introduced in fragments in Japan after the Meiji restoration of 1868 and his work came into prominence late in comparison to other major thinkers figuring in the history of economic thought.

The book seeks to analyse the studies in Japan from the year 1920 to the end of the 1930s – during the time before the outbreak of the Second World War, when even the study of classical economics became difficult. The book covers different aspects of his works and contains elements which may be interesting to foreign and even Japanese readers today without necessarily coming under the influence of Marx's reading. It presents works on Ricardo that are at present, wholly unknown to the Ricardo scholars and more generally to the historians of economic thought outside Japan.

This book is an essential read on the history of economic thought in Japan.

1
Ricardo in the history of economic thought

(Three articles written from the end of Meiji era to the beginning of Taishō era – circa 1910)

Tokuzō Fukuda

1. From Ricardo’s theory of rent to that of Marx

The word ‘rent’ is used in everyday life in a sense altogether different from that in economics. In the latter usage, it is linked to three further terms: 1. wages, 2. interest, and 3. entrepreneurial profit. These four items (rent, wage, interest and entrepreneurial profit) are elements of the economic theory of distribution. However, it is only rent that is treated in a very particular way. The primary reason for this lies in Ricardo’s use of the term. He was an English economist, with so keen a mind that he can be said to be the founder of economics. He advanced a theory of rent that was subsequently named after him; once published, it was accepted by the majority of economists, although there was some criticism. His theory of rent made use of the term in a way distinct from the meaning ordinarily associated with the word. This initiated a definition of rent peculiar to economics, as part of a theory of distribution in which wages, interest and profits were used in a more everyday sense, and this situation prevailed until very recently. Two major and different tendencies have emerged: first, a tendency to treat wages, interest and profit of enterprise in the same way that rent has been treated; second, a tendency to cease treating rent in any specific sense, treating it instead as an ordinary word, analogous to the treatment of wages, interest and profits. This may, I think, be by far the most important current problem of pure economic theory. If economics is to progress further, then it will have to begin with the theory of rent.

According to the conventional account, the production of wealth prior to distribution requires four agents: 1. the landlord, 2. the capitalist, 3. the labourer, and 4. the entrepreneur. These four agents effect production, and the wealth thus produced is divided among them. The part received by the landlord is called rent, that received by the capitalist interest, that by the labourer wage, and that by the entrepreneur entrepreneurial profit. In this process of distribution only rent is treated differently to the other three, being deducted at the end of the process. Some American economists seek to extend this particular treatment to the other three, which are to be treated in the same way as rent. Mr. Clark, Professor of Columbia University, celebrated for his erudition and extremely clear thinking, has proposed this approach, and he has been supported in this by a number of scholars. Austrian scholars represent another tendency that proceeds in the opposite direction. In Austria economics has made rapid progress recently, prominent economists emerging with new doctrines. Among them Böhm-Bawerk, who was finance minister for some time, is a redoubtable opponent. He claims that the special treatment with regard to rent should be abandoned, treating it like the other three terms. Clark and Böhm-Bawerk have recently engaged in a significant debate. Many of the English and French scholars continue to follow the conventional doctrine, agreeing with neither Clark nor Böhm-Bawerk, with some exceptions. A conflict has consequently arisen between these supporters of the conventional doctrine and a faction of (socialist) scholars that attacks it. Among the latter, the most sharp-witted and widely read is Marx in Germany. The conflict arose because Marx integrated the theory of rent into his economic doctrine; Ricardo became the adversary of Marx. Curiously both were Jewish. The Jews are humiliated everywhere in Europe, but they are economically very powerful, especially in banking and business. Nonetheless, we find on close investigation a number of Jews among those economists who are the most admired for their thinking. Marx and Ricardo are remarkable examples of this phenomenon, so much so that we would incline to think that the theory of rent is owed to some kind of Jewish thinking, although I am in no position to judge, but simply remark upon it. I suppose that few parts of economic theory are as interesting, and this has become the basis of the entire doctrine of Marx. There is a fundamental difference between England in Ricardo’s day and England as it is today. Today we have an England of free trade, although some elements of protectionism have been reintroduced, while on the whole remaining in the framework of free trade. In Ricardo’s time, by contrast, protectionism largely prevailed, especially with regard to very high tariffs on corn to prevent its import. It was in such an era that Ricardo published his works. Witnessing the harmful effects of this protectionism, in direct opposition to this he advocated free trade. Moreover, we must take into account the fact that he was Jewish. A race leading a cosmopolitan and rootless life throughout Europe, the Jews made no national distinctions from the outset. This point is also particularly clear in Marx. We also need to take account of his social position. Ricardo was not educated as a scholar; his economics was learned later in his life, after he had made money as a broker in the stock exchange. It was therefore quite natural that Ricardo, with this racial background and his experience as a broker, became indignant about the prohibition of corn imports. This indignation was expressed clearly in his general doctrine, and also in his theory of rent, which is opposed to the landowner, concluding that rent is not a part of the cost of production. Wages, interest and entrepreneurial profit are all payments for human labour, but rent is not. Though initially limited, it increases with the gradual increase in population. The price of land rises and rent increases, so that rent is never a payment for the work of particular persons. By prohibiting the importation of corn more will have to be produced domestically, requiring in turn more land. This makes landowners rich. The happier the landowners are, the more the social progress is obstructed. In other words, the wealthier the landowners are, the less wealthy are people of other classes; and so landowners are enemies of social progress. Marx adopted this proposition and extended it to his own theory. In extending Ricardo’s doctrine one must necessarily arrive at a socialist conclusion with respect to the theory of rent. Ricardo himself did not develop his doctrine to that point, which is why Marx appeared soon after the death of Ricardo. There were many other economists in the intervening period, orthodox economists on the one hand and ‘Ricardian socialists’ on the other.

2. The debate between Malthus and Ricardo on the cause and the measure of value

i) Labour expended or labour commanded?

Labour expended or labour commanded? Malthus and Ricardo held fundamentally different opinions on this question; one hundred years ago they engaged in continuing debate throughout their life as scholars. The streams of thought flowing from the work of Adam Smith became divided, and the division continues up to the present. This is cause for concern. Even today the problem has not yet resolved, rather it seems to have become more complicated. So to re-examine exactly what Malthus and Ricardo said can never be a fruitless task. Malthus wrote: ‘Adam Smith, in his chapter on the real and nominal price of commodities, in which he considers labour as an universal and accurate measure of value, has introduced some confusion into his inquiry by not adhering strictly to the same mode of applying the labour which he proposes for a measure. Sometimes he speaks of the value of a commodity as being measured [‘determined’ in the first edition] by the quantity of labour which its production has cost, and sometimes by the quantity of labour which it will command in exchange’. These sentences appear in both the first and the second editions of Malthus’s Principles of Political Economy, while the following passage can be found only in the second edition. (See the first sentences of Section 4 of chapter 2 in the first edition [p. 85], the seventh paragraph of Section 4 of the same chapter in the second edition [p. 84]). ‘It is in the latter sense, however, in which he applies it much the most frequently, and on which he evidently lays the chief stress. “The value of any commodity,” he says, “to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities”.[Smith’s sentences quoted by Fukuda in English] Other expressions in the same chapter apply labour as a measure of value in the same way; […] It would not then be worthwhile to inquire how far labour may be considered as a measure of value, when applied in the way which Adam Smith has practically rejected (meaning labour expended [phrase inserted by Fukuda]) in reference to the more advanced stages of society, if this mode of applying it had not been adopted by some distinguished modern writers as the foundation of a new theory of value’. (p. 85 in the second edition)

It is of course Ricardo who is called to be among the ‘distinguished modern writers’. In fact Ricardo writes the following in Principles of Political Economy and Taxation:

Adam Smith, who so accurately defined the original source of exchangeable value, and who was bound in consistency to maintain, that all things became more or less valuable in proportion as more or less labour was bestowed on their production, has himself erected another standard measure of value, and speaks of things being more or less valuable, in proportion as they will exchange for more or less of this standard measure […]; not the quantity of labour bestowed on the production of any object, but the quantity which it can command in the market: as if these were two equivalent expressions.

If this were true, ‘either might accurately measure the variations of other things: but they are not equal’ (Page 6 in the first edition, no alteration in the third edition [Fukuda quotes from The Works edited and published by McCulloch in 1846 and gives the page numbers for this edition. We add the volume and page numbers in the Sraffa edition, indicated e.g. I/13–4, ditto infra]). Ricardo continues as follows:

It cannot then be correct, to say with Adam Smith, “that as labour may sometimes purchase a greater, and sometimes a smaller quantity of goods, it is their value which varies, not that of the labour which purchases them;” […] but it is correct to say […] “that the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another” [Smith’s sentences quoted by Fukuda in English]; or in other words, that it is the comparative quantity of commodities which labour will produce, that determines their present or past relative value, and not the comparative quantities of commodities, which are given to the labourer in exchange for his labour.

[I/16–7, emphasis added. Pages 10–11 in the first edition, the same text appearing in the third edition.]

Put simply, the above means that the comparative value of one commodity with another depends solely on the process of production using labour, and not on the amount distributed as wages.

Ricardo is not always coherent in maintaining his doctrine that labour is value. Although there are not many textual modifications between the first and the third edition of Principles, there are non-trivial substantive differences. Moreover, his letters to Malthus, McCulloch and Hutches Trower [published toward the end of the nineteenth century by Bonar and J. H. Hollander: see Introduction, p. 19] show that he did not cease thinking about this problem, gradually changing his mind to the approach to the production cost theory of value which he bequeathed to posterity via John Stuart Mill. Nevertheless, there was almost no change in his argument endorsing the labour expended theory and rejecting the idea of a labour commanded theory; and he eventually and reluctantly concluded that an invariable measure of value does not exist. He lamented this in a letter to Malthus, saying that ‘We both have failed’ [quoted in English] (letter of 15th August 1823, IX/352). For Malthus however circumstances were different. There are major differences between the first edition (1820) and the second edition (1836) of his Principles of Political Economy, although not so great as between the first and second editions of his Essay on the Principle of Population. Regarding the passage quoted above, while in the first edition of Malthus’s Principles the title of Section 4 was ‘Of the labour which a commodity has cost’, in the second edition it was modified to ‘Of the labour which has been employed on a commodity’ [these two titles quoted in English, in the original the titles of both editions are entirely italicised]. And the first edition lacks the paragraph quoted above beginning with ‘however’ [pp. 61–2 above]; instead we find there the following sentences [following two quotations from Malthus are from original English texts]:

These two measures are essentially different; and, though certainly neither of them can come under the description of a standard, one of them is a very much more useful and accurate measure of value than the other.

When we consider the degree in which labour is fitted to be a measure of value in the first sense used by Adam Smith, that is, in reference to the quantity of labour which a commodity has cost in its production, we shall find it radically defective.

[Emphasis by Fukuda. Page 85 in the first edition]

And on page 87 Malthus writes:

I cannot, therefore, agree either with Adam Smith or Mr. Ricardo in thinking that, “in that rude state of society which precedes both the accumulation of capital and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another.”

[cf. I/13]

What attracts our attention here is the fact that, in the letter to Malthus of 15th August 1823 sent from Gatcombe Park, hence only 26 days before his death, Ricardo mentions this problem and writes: ‘The difference between us is this, you say a commodity is dear because it will command a great quantity of labour, I say it is only dear when a great quantity has been bestowed on its production. In India a commodity may be produced with 20 days labour and may command 30 days labour. In England it may be produced by 25 days labour and command only 29. According to you this commodity is dearer in India, according to me it is dearer in England’ [IX/348]. Bonar writes in his Introduction that the letters sent from Malthus to Ricardo can no longer be traced, so we cannot know what the response to this letter was. Ricardo was continuing his debates with Malthus unaware of his imminent death; something that allows us to sense the degree of his zeal for truth, while we can also see that this problem continued to preoccupy him. He returned to the same problem in his last letter to Malthus on 31st August. He had concluded the letter of the 15th by writing that ‘I am just now warm in the subject, and cannot do better than disburden myself on paper’ [IX/352, quoted in English], which explains why he wrote this last letter. He wrote there that: ‘I have only a few words more to say on the subject of value, and I have done. You cannot avail yourself of the argument that a foot may measure the variable height of a man, altho’ the variable height of a man cannot truly measure the foot, because you have agreed that under certain circumstances the man’s height is not variable, and it is to those circumstances that I always refer’ [IX/380]. And he concludes this letter with the following words: ‘And now, my dear Malthus, I have done. Like other disputants after much discussion we each retain our own opinions. These discussions however never influence our friendship; I should not like you more than I do if you agreed in opinion with me’ [IX/382, quoted in English]. He died on 11th September 1823. Malthus survived for another 11 years and continued thinking about this problem. Four years after the death of Ricardo he published Definitions in Political Economy, presenting his new ideas about the theory of value, which had always been in opposition to those of Ricardo. Definitions is indispensable for an understanding of the changes in Malthus’s thinking. He could not convince himself, and thought about the matter again and again. He attempted to prepare a new edition of his Principles making use of the results of his later studies, applying himself intensively to this task. However, he died in 1834 before he could finally complete the work. Fortunately the new edition was published as the second edition after his death by his two friends, so that we are aware of his final ideas about this problem. In this second edition Malthus newly inserted the following extremely notable passage as a footnote, at the beginning of Section 4 of chapter 2:

The labour worked up in a commodity is the principal CAUSE of its value, but it will appear in this chapter that it is not a measure of it. The labour which a commodity will command is NOT the CAUSE of its value, but it will appear in the next chapter to be the measure of it.

[Footnote to page 83 in the second edition (words in capitals are italics in the original and emphases in italics are by Fukuda)]

Ricardo as well as Adam Smith did not distinguish between the cause and the measure of value, arguing only that labour was value. They spoke sometimes of labour as a ‘source’, a ‘foundation’ or a ‘circumstance’, at other times as a ‘measure’ or ‘standard measure’, and often used the word ‘determine’ [some words in quotation marks above are written in English]. While in the first edition Malthus was also very ambiguous on th...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of illustrations
• Editor’s notes
• Introduction: Ricardo studies in Japan during the interwar period
• 1 Ricardo in the history of economic thought
• 2 From my career of economic research
• 3 Ricardo as apogee of the orthodox economics
• 4 Ricardo’s theory of wages
• 5 Essential aspects of Ricardo’s theory of value
• 6 Ricardo’s theory of value and distribution
• Index