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No one can doubt that it would be a great desideratum in political economy to have such a measure of absolute value in order to enable us to know, when commodities altered in relative value, in which the alteration in value had taken place (David Ricardo 1823, p. 399n).

The idea that changes in the relative or exchangeable value of a pair of commodities might usefully be attributed to alterations in the ‘absolute value’ of one or the other of them will appear rather odd to anyone accustomed to thinking of the basic problem of price theory as being the determination of sets of relative prices, with any consideration of ‘absolute’ value being confined to problems in monetary theory and the determination of the overall price level. Since in neoclassical theory it is the relative scarcity of commodities, or of the factor services which are used to produce them, which is the key to relative price formation, no conception of ‘absolute’ value, that is, a price associated with the conditions of production of a single commodity, is either relevant or necessary.

Yet the notion of absolute value arose naturally within Ricardo’s analysis of value and distribution. The central problem of classical theory is to relate the physical magnitude of surplus (defined as the social output minus the replacement of materials used in its production and the wage goods paid to the labourers employed) to the general rate of profit and the rents in terms of which the surplus is distributed. The key image is the distribution of a given magnitude of output between the classes of the society. ‘After all’, as Ricardo put it, ‘the great questions of Rent, Wages and Profits must be explained by the proportions in which the whole produce is divided between landlords, capitalists, and labourers, and which are not essentially connected with the doctrine of value’ (1820, p. 194). Ricardo was able to sustain this ‘material’ view of distribution only in the Essay on Profits, and only there by the implicit device of a sector in which all inputs and all output consist of the same commodity, corn, which is also used to pay wages in the other sectors of the economy. In the corn sector the division of the product may be expressed in physical terms, and the rate of profit expressed as a ratio of physical magnitudes.

This clear and direct analysis is no longer possible once the strong assumption of a self-reproducing sector is dropped.

The need to express heterogeneous surplus (net of rent) and heterogeneous capital as homogeneous magnitudes in order to determine the rate of profit created the need for a theory of value. Ricardo’s materialist approach led him to the labour theory of value. The quantity of labour embodied directly and indirectly in the production of a commodity is determined by the conditions of production of that commodity, or as Ricardo put it, by the difficulty or facility of production, and will change only when the technique changes. Hence the aggregates of social surplus and capital advanced may be expressed as quantities of labour, these quantities being invariant to changes in the distribution of social product. So the rate of profit is determined as the ratio of surplus (on the land last brought into use) to the means of production, including wages.

Once, however, the impact of changes in distribution on exchangeable value is taken into account the picture is far less clear. The value of social output, and of the surplus, measured in any given standard, will typically now vary as distribution varies, even though the physical magnitude of social output remains unchanged. The direct deductive relationship between wages, surplus, and hence, the rate of profit, is no longer self-evident, or indeed, evident at all. It was Ricardo’s desire to restore clarity to his analysis which led to his search for an invariable standard of value (a standard in terms of which the size of the aggregate would not vary as distribution was changed) and for what Sraffa describes as ‘for Ricardo its necessary complement’, absolute value (Sraffa 1951, p. xlvi).

The term ‘absolute value’ was used by Ricardo but once in the first edition of the Principles and occasionally in letters. It was clarified in the papers on ‘Absolute Value and Exchangeable Value’, written in 1823 in the last few years of his life. These were discovered in a locked box at the home of F.E. Cairnes, the son of the economist John Elliot Cairnes, in 1943, and published for the first time in Sraffa’s edition of Ricardo’s Works and Correspondence.

There are two versions of the essay. One, a rough draft, is written on odd pieces of paper, some of them the covers of letters addressed to Ricardo. The other is a scarcely corrected draft, written on uniform sheets of paper. This clean draft breaks off, unfinished.

The importance of the essay derives from the reinforcement it provides to that interpretation of Ricardo’s theory of value and distribution which suggests that the problem of the determination of the relative values of commodities stemmed from Ricardo’s desire to relate his image of the division of social product as a physical magnitude to the wages, rents, and rate of profit of a market economy. Ricardo was not interested for its own sake in the problem of why two commodities produced by the same quantities of labour are not of the same exchangeable value. He was, rather, concerned by the fact that as distribution of social output changes exchangeable value changes, disrupting and obscuring an otherwise clear vision. It was this emphasis on the fact that changes in distribution lead to changes in exchangeable value, even though the quantity of social output and the method by which it is produced are unchanged, which led Ricardo into the intellectual cul-de-sac of the search for an invariable standard of value.

The absolute value of a commodity is the value of that commodity measured in terms of an invariable standard. An invariable standard of value may be found

... if precisely the same length of time and neither more nor less were necessary to the production of all commodities. Commodities would then have an absolute value directly in proportion to the quantity of labour embodied in them. (Ricardo 1823, p. 382.

Changes in the absolute values of commodities could then derive only from changes in the amount of labour embodied in them, and the value of social output would be invariate to its distribution.

Yet precisely because all commodities are not produced under the same circumstances, ‘difficulty or facility of production is not absolutely the only cause of variation in value, there is one other, the rise or fall of wages’ since commodities cannot ‘be produced and brought to market in precisely the same time’ (1823, p. 368). Hence Ricardo must conclude, rather sadly, that ‘there is no such thing in nature as a perfect measure of value’ (1823, p. 404) – there is no such thing as an invariable standard of value.

Marx (1883), who could not, of course, have seen the papers on Absolute and Exchangeable Value, was critical of Ricardo’s absorption with the search for an invariable standard. The focus on changes in relative value obscured the fact that commodities do not exchange at rates proportional to their labour values (labour embodied). Yet Marx’s attempt to restore clarity to the analysis of distribution by first determining the rate of profit as the ratio of quantities of labour, and then ‘transforming’ labour values into prices of production, encounters difficulties which derive from exactly the same source as those which bedevilled Ricardo – the difference in production conditions or ‘organic composition of capital’ of commodities.

The data of classical theory can be used to determine the rate of profit, as Sraffa (1960) has shown. But the determination cannot be ‘sequential’ – first specifying a theory of value and then evaluating the ratio of surplus to capital advanced by means of that predetermined theory of value. Rather the rate of profit and the rates at which commodities exchange must be determined simultaneously.

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