This diary assumes some knowledge of classical economics discussions that I have addressed in previous diaries in the Classical Economics Series that I have been doing on the Daily Kos. I would strongly urge you to go back and check the previous diary on Hodgskin and the right of the workers to the whole of the product (http://www.dailykos.com/...) and the discussion on Ricardo’s theory of value for a refresher of the labour theory of value before Marx (http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/...). Please also check Smith on wages for a reminder of the classical theory of wages (http://www.dailykos.com/..., http://www.dailykos.com/..., http://www.dailykos.com/...). This will help understand from where Hodgskin's arguments and criticisms derive and will get you in the spirit of the diary.

The Role of the Labour Theory of Value in Hodgskin

In Labour Defended Against the Claims of Capital (1825) and Popular Political Economy (1827), Hodgskin criticised Political Economy which he maintained justified capitalist property relations, and hence, the exploitation of the labourers.

Hodgskin's writings should be contrasted with those of Smith and Ricardo from whom his theory derived. Ricardo utilised the labour theory of value in order to deal with the heterogeneous bundles of commodities determining the rate of profit. This enabled him to demonstrate his argument that given the level of output, an inverse relationship existed between wages and the rate of profits and the determination of the exchange value of commodities and the rate of profits.

Hodgskin was less concerned with determining exchange values per se and was not concerned with the impact of distribution and the proportions of capital and labour used in production upon exchange value. He utilised the concept that labour is the source of the value of the surplus product, a labour commanded standard of value, and the notion of the natural right of property to sustain his conclusions concerning the exploitative nature of the capitalist system.

Inverse Relation between Wages and Profits

Hodgskin maintained that wages are inversely related to profits. He used two arguments to show exactly how the interests of the capitalists are in opposition to those of the workers.

Hodgskin began by criticising Ricardo's idea that the natural wage was naturally at the subsistence level. He contended that the workers' poverty was a socially generated condition. The doctrines of political economy viewing the wage necessarily at the level of subsistence, articulated a theory taking as its basis the social situation. This social situation was then theoretically justified as a natural phenomenon (Hodgskin, 1825, pp. 81-2).

The labourer's share of the produce of a country, according to this theory, is the "necessaries and conveniences required for the support of the labourer and his family; [...] The labourers do only receive, and ever have only received, as much as will subsist them, the landlords receive the surplus produce of the more fertile soils, and all the rest of the whole produce of labour in this and in every country goes to the capitalist under the name of profit for the use of his capital (Hodgskin, 1825, p. 31).

However, for the purpose of showing the existence of an inverse relationship between wages and profits under the capitalist system, Hodgskin assumed that the wage is at the level of subsistence. So, irrespective of his criticism of Ricardo and Smith, Hodgskin assumes that all the different types of labourers receive a subsistence wage irrespective of their level of training. Hodgskin's avoidance of the question of wage differentials, or non-justification of this assumption, seems rather bewildering for two reasons. First, Hodgskin did speak of skilled labour required for the production of fixed capital. Second, he argued that wage differentials existed due to some forms of labour being seen as socially more acceptable and that these wage differentials were unrelated to the usefulness of the form of labour. However, I would assume, that for the sake of the demonstration of his argument and that the capitalist system was essentially exploitative, Hodgskin accepts the social situation as a given, that is, that workers in the system only get the social subsistence level of wages.

If all kinds of labour were perfectly free, if no unfounded prejudice invested some parts, and perhaps the least useful, of the social task with great honour, while other parts are very improperly branded with disgrace, there would be no difficulty on this point, and the wages of individual labour would be justly settled by what Dr. Smith calls the "higgling of the market." Unfortunately, labour is not, in general, free; and unfortunately, there are a number of prejudices which decree very different rewards to different species of labour from those which each of them merits (Hodgskin, 1825, pp. 85-6).

Hodgskin derived the inverse relation between wages and profits in two different ways. He first articulated this doctrine in terms of the physical social product, i.e., he derived it as a relation between the proportions of the social product that each class receives.

Wages vary inversely as profits; or wages rise when profits fall, and profits rise when wages fall; and it is therefore profits, or the capitalist's share of the national produce, which is opposed to wages, or the share of the labourer (Hodgskin, 1825, pp. 27-8).

It is through the theory of value that Hodgskin sustained his argument concerning the relationship between wages and profits. To derive his proposition, he began with the principle that the natural prices of commodities were determined by the quantity of labour required for their production and the natural right of property. Hodgskin had a notion that each commodity required a certain quantity of labour to produce it irrespective of the social conditions of production. Hodgskin argued that this quantity of labour ensured the production of the workers's consumption bundle.

He began by stating that the value of a commodity was based on the quantity of labour required for its production. Hodgskin then stated that if the labourer received the whole of his product then the exchange value of a commodity will be equal to the quantity of labour naturally required for its production.

In Hodgskin's state of nature (equivalent to Smith's early and rude state and Ricardo’s early stages of society), where labour received the whole of the social product, the exchange value of the commodity measured in labour commanded and labour embodied coincide.

PY = wL

PY/w = wL/w

PY/w = L

The labour commanded by the product (that part going to labour) = the quantity of labour required to produce the product

Under capitalism, these two measures of value diverge. The existence of profits, in and of themselves, does not affect the quantity of labour required for production of a commodity. However, the existence of profits will increase the value of the commodity in terms of labour commanded.

Hodgskin's usage of a labour commanded standard of value meant that the existence of the social conditions of capitalism (i.e., the existence of profits and rents) forced the worker to work additional hours in order to purchase the same quantity of commodities. These additional hours are over and above what is required by nature for the production of the commodity. The quantity of labour a commodity commands is now greater than what was previously necessary to only maintain the workers. In terms of the labour commanded standard, the existence of profits and rents meant that the exchange value (social price) of commodities rose for the labourer.

NATURAL or necessary price means, on the contrary, the whole quantity of labour nature requires from man, that he may produce any commodity, - the natural or necessary price of money being determined, like that of all other commodities, by the quantity of labour required to produce it. [...] There is another description of price, [...], it is natural price enhanced by social regulations. Whatever quantity of labour may be requisite to produce any commodity, the labourer must always in the present state of society, give a great deal more labour to acquire and possess it than is requisite to buy from nature. Natural price thus increased to the labourer, is SOCIAL PRICE (Hodgskin, 1827, p. 220).

In terms of labour commanded, the exchange value of the commodity contained an additional component than previously. The exchange value of the commodity commanded the quantity of labour required to produce the workers' wages and the quantity of labour that now produced the surplus. The quantity of labour commanded by the social product has risen.

Perhaps I can make the evil effects of capital more apparent by another sort of example. The real price of a coat or a pair of shoes or a loaf of bread, all of which nature demand from man in order that he may have either of these very useful articles, is a certain quantity of labour; [...] But for the labourer to have either of these articles he must give over and above the quantity of labour nature demands from him, a still larger quantity to the capitalist. Before he can have a coat, he must pay interest for the farmer's sheep, interest on the wool, [...], after it is in the hands of the manufacturer, interest on all building and tools he uses, and interest on all the wages he pays his men (Hodgskin, 1825, pp. 75-6).

Hodgskin's derivation of the inverse relationship between wages and profits flowed logically from this argument. The value of the commodities rises in terms of labour commanded due to the existence of profits. As such, additional labour is required in order to purchase the commodities, thus, the wages of labour fall.

Exploitation of the Workers Under Capitalism

The basis of the exploitation of the worker is evident: the fact that the worker does not get the whole of the product that he/she has produced is a rejection of the natural right of property. But even more so, the social and economic system of capitalism and the privatisation of land leading to the existence of profits and rents respectively means that in order for the worker to get the same amount of product as they did previously, they have to work additional hours over and above to cover profits (and the compound rate of profits) and rents:

In the same manner before a labourer can have a loaf of bread, he must give a quantity of labour more than the loaf costs, by all that quantity which pays the profit of the farmer, the corn dealer, the miller and the baker, with profit on all the buildings that they use; and he must, moreover, pay with the produce of his labour, the rent of the landlord (Hodgskin, 1825, p. 76).

Hodgskin demonstrated the relation between distributive variables by showing that the value of the product, in terms of labour commanded, increased as profits rose, resulting in a fall in wages. The exchange value of commodities was measured such that profits are shown as commanding an additional quantity of labour over and above what was necessary in the natural state. Hodgskin used this result to show the existence of exploitation. Exploitation was manifested when profits rose; of necessity, the value of the whole social product must also rise, forcing the labourers to work additional hours to obtain the same quantity of commodities. The quantity of commodities comprising wages rises in price, commanding a greater quantity of labour, thus, wages fall.



Suggested Readings

Claeys, Gregory. (1987) Machinery, Money and the Millennium: From Moral Economy to Socialism, 1815-1860, Princeton, NJ: Princeton University Press.

Dobb, Maurice. (1973) Theories of Value and Distribution Since Adam Smith, Cambridge: Cambridge University Press.

Ginzburg, Andrea. (1987) "The Ricardian Socialists," in The New Palgrave: A Dictionary of Economics, Volume 4, London: MacMillan Press, Ltd., pp. 179-83.

Halevy, E. (1956) Thomas Hodgskin, translated with an introduction by A.J. Taylor, London: Benn.

Hodgskin, Thomas. (1825) Labour Defended Against the Claims of Capital, with an introduction by G.D.H. Cole, New York: A.M. Kelley Publishers, 1963.

Hodgskin, Thomas. (1832) The Natural and Artificial Rights of Property Contrasted, Clifton N.J.: Augustus M. Kelley Publishers, 1973.

Hodgskin, Thomas. (1827) Popular Political Economy, New York: A.M. Kelley Publishers, 1966.