On the Value Concept (part 1)

(This essay represents a sort of report on the main trajectory of my research this year, which has concerned an attempt to trace the intellectual history of “real” measures in economics. This first half of the essay concerns the “pre-growth” theories of Petty and Cantillon, and ends with the “discovery” of the idea of growth by Hume. In the second half of the essay, I will attempt to trace the history of the concept through the “post-growth” theorists like Smith and Ricardo in order to better understand the state of the concept as it arrived in the hands of Marx.

As I am still very much in the process of attempting to think through these problems, I welcome critical feedback on what I’ve written here so far. You can email me at colindrumm@gmail.com. We will be holding a workshop on this essay at the Mimbres School on Nov 4 @ 11 pacific/ 2 eastern, which all readers are invited to join (via Zoom). If you appreciate this work, consider supporting the school at patreon.com/MimbresSchool)

1. How did we get here?

“Value” is the central mystery of Marxism. To operate in Marxist, Marxian, or Marx-adjacent spaces is to expose oneself constantly to the criticism that one has somehow failed to understand it. In this essay, I would like to report on some of my research this year, in which I have tried to trace the history of this concept as it arrives in the hands of Marx: a history that Marx himself was perhaps the first to write, and at least one aspect of which he misrepresents quite seriously. As I will try to show, by tracing the history of the discourse about “Value” back to its origins in the mid 17th century, we can make this concept rather more approachable than it sometimes appears in the hands of the Marxist exegetes. Such an improved understanding may help us re-evaluate what usefulness, if any, this concept has for us today.

The first thing to understand about the Value concept is that it was developed in the context of a debate largely internal to the British ruling class (with some help from their French counterparts) from the 17th to 19th centuries: during and in the aftermath of the Civil War, the so-called Glorious Revolution, the establishment of the Bank of England, and the suspension of redemption of the BoE’s notes during the Napoleonic Wars. These events laid the foundation for what we now call the “modern monetary system,” or a system of credit money based on the monetization of public debt. This was the result of a violent process of constitutional struggle that fundamentally reconfigured the organization of sovereignty within the British state.

The medieval English constitutional order was founded on the premise that the King was, essentially, just the biggest lord, and that the Crown itself would would be funded in the same way they were: via its agricultural revenues (as they put it, the King would “live of his own”). This meant that the Crown would share, with the barons, an interest in the maintenance of sound money: any reduction in the silver content of the English money would lower the value of nominal money rents in foreign-exchange terms. The commitment to sound money, however, produced a dilemma, which was that maintaining the quality of the money constrained its quantity, such that the English economy was chronically short of cash. This constitutional order was irrevocably broken after the ascension of James I, who was the first European monarch to run a permanent fiscal deficit and thus enter into the previously uncharted waters of modern deficit finance.

The emergence of the permanent fiscal deficit in the English 17th century led to violent constitutional struggle because of the simple fact that the King, as the King, was a bad credit risk, because there wasn’t much available recourse if he should choose to stiff his creditors (GAUNT: “But since correction lieth in those hands,/ Which made the fault that we cannot correct...” R2 1.2.4-5). The tension between the quality and quantity of money (or between the FX value of money and the available domestic money supply) was eventually “solved” by the establishment of the Bank of England, which allowed for the creation of a domestic money supply that was merely collateralized by, rather than directly embodying, foreign exchange. But this was a development that could not take place without subordinating the sovereign to Parliament, because doing so was tantamount to establishing a chokepoint at which the central fiscal authority could unilaterally suspend the convertibility of domestic money into foreign exchange. This is something that the medieval constitutional order could never have allowed.

Thus, the development of Parliamentary sovereignty in the English constitution allowed the creation of a “safe” public debt, which would “unhinge” the domestic money supply from the foreign exchange constraint and allow the circulation of intrinsically worthless money that nonetheless enjoyed public confidence. But this fact created a certain degree of metaphysical confusion about the nature of wealth. Previously, it had been fairly easy to understand: wealthy landholders basically sought to convert their landed revenues into money — silver and gold coinage — that directly embodied foreign exchange, which they could use to purchase imported foreign luxuries and even to fund open military conflict against the King himself. Now, however, receiving their revenues in the form of paper and credit instruments, they would be confronted with a puzzle. What was the point of money, anyway? What did it really represent?

2. The Power Theory of Value

The history of the debates over this question begins with Thomas Hobbes. Hobbes is not especially concerned with the question of money, specifically, although he is fully aware (as he makes clear in Behemoth) that conflicts over the fiscal system were a proximal cause of the outbreak of armed struggle in 1642. But in Leviathan he makes two claims that set the stage for the development of the labor-Value concept. The first claim is found in Book 1, Chapter 10: “Therefore to have servants,” says Hobbes, “is Power; To have friends, is Power: for they are strengths united. Also Riches joyned with liberality, is Power; because it procureth friends, and servants: Without liberality, not so; because in this case they defend not; but expose men to Envy, as a Prey.” Here, Hobbes presents what we might call a “power theory” of wealth, coupled with an emphasis on the flow of funds rather than a stock of money: a hoard of cash, he suggests, is really just a security risk. Better to spend it making friends and acquiring servants. His emphasis on the circulation of money continues in Book 2, chapter 24, where he draws a distinction between domestic “mony,” which “passeth from Man to Man, within the Common-wealth; and goes round about, Nourishing (as it passeth) every part thereof” and “gold and silver,” which “have their value from the matter it self” and therefore “have the priviledge to make Common-wealths, move, and stretch out their armes, when need is, into forraign Countries; and supply, not only private Subjects that travell, but also whole Armies with Provision.”

What Hobbes does here is to advance the disarticulation of inside from outside money: while outside money, in the form of foreign exchange, may (perhaps) be usefully understood as a stock, inside money by contrast must be understood as a flow, and a flow whose primary value lies in its capacity to exert power over others rather than any quality or substance inhering in the money itself. Thus, there is a way in which, when it comes to inside money, asking about “how much of it” there is is a symptom of confusion, since, like the blood, the real question is about the circuits through which it moves, and how the movement of money through those circuits mobilizes, recruits, or commands the power of others towards your own purposes.

But Hobbes’ analysis, written on the eve of the Restoration of the Stuarts, leaves unresolved a quite significant problem. If the King were to exercise the power of “Riches joyned with liberality” by spending a lot of money, he would first need to have a lot of money to spend. This (pace the overconfident assertions of the chartalists) meant taxes. Hobbes, in characteristic fashion, simply asserted the sovereign’s capacity to tax as an unconditional and arbitrary power: “the Kings word,” he wrote, “is sufficient to take any thing from any Subject, when there is need; and that the King is Judge of that need” (2.20). Whatever the merits of this view in the abstract, it was far from providing a workable basis for Restoration finance: the Long Parliament had abolished all forms of extra-parliamentary public finance, and Charles II was not eager to risk losing his head in an attempt to reconstruct a system of prerogative revenues. Hobbes was not entirely unaware of this concern, and, under the more general heading of “Equall Justice,” advised that taxes, in order to be most fair, ought to be levied on consumption rather than wealth, on the grounds that the rich man and the poor man nevertheless can be accounted as having an “Equality of the debt, that every man oweth to the Common-wealth for his defence” (2.30).

This rudimentary theory was left to be expanded upon by Hobbes’ erstwhile personal secretary, William Petty, whose “Treatise of Taxes,” written sometime around 1662, is perhaps the first entry into the tradition we now call “economics.” It is a striking fact, given the later trajectory of this discourse, that Petty begins with what we would now call the public sector and he calls the “publick charge”: a set of functions carried out, or which should be carried out, by the government. These functions fall into the following categories: security, justice, “pastorage” (i.e. the church), education (which, Petty acknowledges, is mostly not currently in the public sector, but should be), support for the poor, and infrastructure.

Having established the necessity of the public charge, Petty then turns to a discussion of its funding. He begins with the interesting assertion that tax avoidance is, in itself, a cause of increase in the tax burden, due to the fact that it produces “an unnecessary Charge to collect them, and [forces] their Prince to hardships towards the people” (21). Thus, he begins by acknowledging the existence of a political cost to taxation, a cost which must be borne out of the proceeds of taxation itself. The schema therefore raises the question of optimizing tax revenues over a social resistance function. To this, Petty adds two other difficulties: first, the problem of illiquidity (i.e. the difficulty of meeting the demand for everyone to come up with money at tax time, in a context of general scarcity of cash), and, second, the potential absence of a large and well-assessed tax base (“fewness of the people” and “ignorance of their numbers”). From these observed difficulties, we can infer a positive project: Petty is interested in coming up with a theory for how the English government can tax as much as it can while inspiring as little social resistance as possible, to accomplish which it needs to develop a large and well-assessed tax base (composed especially of “Labourers and Artificers”) and ensure that the economy is provided with a monetary supply sufficient to actually pay the taxes.

Now, Petty is obviously well aware that the “social resistance function” includes states of civil war, and that the “fear of Wars” — both foreign and domestic — is itself a “Cause of encreasing the Military Charge.” Here, then, Petty is making a significant advance on the foundations laid by Hobbes: if, as Hobbes argued, the fear of war is the foundation for public order, and the fear of war has a price, paid in the form of taxes for the “security” component of the “publick charge,” then what Petty adds to this is the observation of the potential for a positive feedback loop leading to a collapse into a state of war: if an increasing tax burden leads to increased social resistance to taxation, which in turn further increases the tax burden by producing additional security risks, then the system must eventually reach a point at which the price paid to hedge against the risk of war becomes too high. This situation will lead to “Civil Wars” caused by “peoples fantasying, that their own uneasie condition may be best remedied by an universal confusion; although indeed upon the upshot of such disorders they shall probably be in a worse.” In other words, there is a point at which the price of security becomes high enough that people imagine (however wrongly, in Petty’s opinion) that they would rather take the risk of anarchy, a price that might actually be reached if the “feedback loop” between security and taxation should be allowed to get out of hand.

William Petty thus inaugurates the discourse of economics by supplying Hobbes’ theory of the state with a (proto-)mathematical framing in which the security offered by sovereignty is priced in the form of taxes funding the public charge, and in which any increase in the magnitude of this price risks initiating positive feedback by provoking political resistance to taxation. This might suggest that the best way to produce social stability would be through fiscal austerity — shrinking the overall size of the government budget. But this is not a solution either, Petty argues, because of the risk of war, both foreign and domestic.

Petty takes a dim view of “offensive” foreign wars, suggesting that they are usually fought for the benefit for private interests rather than the public weal, and acknowledges that one way to avoid such wars would be to constrict the size of the government’s budget: “those States are free from Forreign Offensive Wars… where the chief Governours Revenue is but small, and… which if they happen to be begun, and so far carryed on, as to want more Contributions, then those who have the power to impose them, do commonly enquire what private persons and Ends occasioned the War…” This, in other words, would be the medieval constitution, in which the military was funded out of extraordinary revenues requiring the approval of parliament. But this situation, says Petty, would itself be a source of security risk, since “Defensive Wars are caused from unpreparedness of the offended State for War… Wherefore, to be alwayes in a posture of War at home, is the cheapest way to keep off War from abroad.”

But in addition to the risk of foreign war, there is a risk of a domestic one. One potential cause is, as we’ve already mentioned, excessive taxation. But the tax-paying classes are not the only sources of potential domestic conflict: there are also what Petty calls “supernumeraries,” or a structural surplus population (what Marx would later call the “reserve army of the unemployed”): “Causes of Civil War are also, that the Wealth of the Nation is in too few mens hands, and that no certain means are provided to keep all men from a necessity either to beg, or steal, or be Souldiers.” Petty, following Hobbes’ notion that excessive riches might “expose men to Envy, as a Prey,” posits the idea that a surplus population produced as a result of social inequality might itself present a security risk to propertied elites, which would be worth hedging by means of redistribution through the fiscal circuit. Anticipating Keynes, he even suggests that as long as it were done “without expence of Foreign Commodities,” it would be “no matter” if this surplus population were “employed to build a useless Pyramid upon Salisbury Plain, bring the Stones at Stonehenge to Tower-Hill” (31).

Added together, what this theory does is to supply the price of sovereignty — the tax burden — with an upper and lower bound. The lower bound is given by the risk of war, both foreign and domestic (as well the other necessary functions of justice, infrastructure, etc): if the government budget falls too low, then the security component of the public charge will fall below the threshold needed to ward off the risk of foreign invasion and domestic unrest provoked by the existence of a “supernumerary” population. If it rises too high, it will rise above the threshold after which the domestic tax-paying population is willing to take the risk of civil war and anarchy rather than submit to taxation. The question, then, is about finding an equilibrium between the two points of failure.

In order to understand how the system can be stabilized even in the presence of rising security costs and therefore a rising tax burden, it will be necessary to have a theory about the conditions under which rising taxation produces social resistance and those under which it doesn’t. This is the question that Petty sets out to answer, and it’s this question that posits the initial framework under which the development of the labor-Value concept gets underway. His answer is that social resistance to taxation is a function not of the absolute magnitude of taxation, but rather of positional inequality with respect to tax exposure: “Let the tax never be so great, if it be proportionable unto all, then no man suffers the loss of any Riches by it” (32). Petty here is drawing on an axiom, previously asserted, that “all men would be no poorer then now they are if they should lose half their Estates; nor would they be a whit the richer if the same were doubled, the Ratio formalis of Riches lying rather in proportion than in quantity” (26). His point here depends on the Hobbesian idea that the value of money is power over others: if everyone loses money proportionately, then their power relations vis-a-vis one another might remain invariant even across a change of nominal wealth. And if their power relations vis-a-vis one another are really all they care about, then they might be indifferent to taxation as long as everyone is taxed proportionately.

3. In Search of Parity

It is for the purpose of trying to create a theory of “just tax incidence” that Petty postulates the necessity of discovering a “natural Par” between “Land and Labour.” Over the course of these passages Petty writes a number of things later excerpted by Marx as evidence of a “somewhat confused” theory of the labor-Value concept. Whatever his confusions, says Marx, Petty “determines the value of commodities by the comparative quantity of labor they contain” (TSV i.355-6). But while Marx means this as a compliment, it’s a serious misreading of Petty. As I will show, Marx simply failed to notice that when Petty opposed “Land” to “Labour,” what he meant by the latter term was actually “capital.” In other words, when Petty talked about “the Labourer,” he did in fact mean a working person paid a wage, but when he talked about “Labour,” he meant their employer (c.f. Locke: “the Grass my Horse has bit; the Turfs my Servant has cut…”, Second Treatise, Ch. 5, par. 28). It is only when we read Petty in this way that we can make sense of his numerical examples, and if we read him in this way he no longer appears confused.

Petty begins this analysis at Chapter 4, paragraph 13 of the “Treatise on Taxes” when he considers land as a revenue-producing asset and then goes on to define that revenue in terms of corn: “Suppose,” he says, “a man could with his own hands plant a certain scope of Land… and had withal Seed... when this man hath subducted his seed out of the proceed of his Harvest, and also, what himself hath both eaten and given to others in exchange for Clothes, and other Natural necessaries; that the remainder of Corn is the natural and true Rent of the Land for that year.” Having defined land as an asset throwing off a stream of corn, Petty then proceeds to another question: what is the value of this corn-revenue in money terms?: “I answer, so much as the money, which another single man can save, within the same time, over and above his expence, if he imployed himself wholly to produce and make it; viz. Let another man go travel into a Countrey where is Silver, there Dig it, Refine it, bring it to the same place where the other man planted his Corn ; Coyne it, &c. the same person, all the while of his working for Silver, gathering also food for his necessary livelihood, and procuring himself covering, &c. I say, the Silver of the one, must be esteemed of equal value with the Corn of the other.”

The reader who has gone looking for a labor-Value concept can squint at this passage and try to find one there: we might try to imagine that Petty is saying something along the lines that the “Value” of the rent is produced by the labor that went into growing the corn, and the “Value” of the silver is produced by the labor that went into collecting the silver, and that these Values must somehow be equal because they both embody one labor-year of spent effort. This seems to be how Marx read it. Given this interpretation, however, what Petty is saying here is totally nonsensical, because of the fact that land — as Petty, the prolific real estate investor, knew well — has a price. But given the labor-Value reading of Petty’s example, it’s impossible to explain why land should have a price at all: if a man could simply go to Peru and dig up some silver for the same return on his efforts that he would receive if he were to buy a farm back home and labor on it, then why would he pay for the farm? The chauvinistic bent of modern commentary is content to resolve this problem by ignoring it or assuming that William Petty was simply confused, in order to preserve the standard interpretation of Petty as having a theory with only two “factors of production” (labor and land) and thus lacking the additional, “modern” factor of “capital.”

But Petty’s theory here is in fact not a theory of labor-Value at all, but a theory in which the relative values of products in different sectors are commensurated by the assumption of an equal rate of return on capital: his “single man” is not a laborer but rather an investor of capital, and, given this reading, his example makes sense. What Petty is really saying is that the relative values of silver and corn must be such that, for a given amount of capital, an investor in land and an investor in overseas trade must generate the same rate of return, after subtracting the costs of wages and seed. This obviously sensible interpretation of Petty has been obscured purely on the basis that his commentators wish to read him as describing a “pre-capitalist” economy, and because of their wish to see him at the origin of the labor-Value concept, in the specific sense of a concept according to which products somehow “embody” some “Value” created by labor, or at least according to which (changes in) the relative prices of commodities tend to be determined by (changes in) the amounts of labor required to produce them. But Petty is not concerned with any of this: what’s he’s concerned with is the problem of what we would now call capital asset pricing, or the question of how to compare the values of assets against the revenue streams these assets generate.

Not only does Petty’s statement make more sense, in the abstract, than later commentators are inclined to grant him, it also has a specific contextual purpose within the debates over taxation after the Restoration of Charles Stuart. The pre-Civil War fiscal structure of the English crown was based upon the distinction between indirect, ordinary taxation and direct, extraordinary taxation requiring the approval of Parliament. The attempt, at the Restoration, to put the constitution back on these foundations proved unsuccessful: although Charles had been granted a yearly revenue by Parliament, the indirect taxes earmarked for this purpose failed to raise sufficient sums, and there ensued a search for new forms of revenue — among them a tax on hearths (which could be assessed without violating the privacy of the household, simply by counting chimneys) established in the same year as the writing of Petty’s Treatise. In the following year, 1663, the government turned once again to direct taxation, and attempted to resurrect the subsidy, the hallmark of English public finance since the 14th century. This tax, also known as the “tenths and fifteenths,” was theoretically a tax on moveable goods at a rate of 1/10 in the towns and 1/15 in the country. In principle, this was simple: it meant that the King should receive one out of every fifteen bushels of corn (etc.) at harvest time, and one out of every ten barrels of wine (etc.) in town. By the middle of the sixteenth century, however, the system had fallen into disarray based upon the political difficulty of accurately assessing property: “the requirement that commissioners should make their return under oath was dropped in 1563. From 1566 individuals assessed themselves for tax purposes, and the Book of Rates… became stereotyped and hopelessly outdated,” and when, in 1663, the Restoration government attempted to revive the tax, it found it to be more trouble than it was worth (Beckett, op. cit.).

With the attempt to reconstruct the fiscal ancien regime unworkable, the government had no choice but to work with the tools that the Commonwealth had left it: the Monthly Assessment. This was a tax assessed at the county level, which was supposedly a flat rate tax on all wealth: “lands, tenements, hereditaments, annuities, rents, parks, warrens, goods, chattels, merchandizes, offices, toll profits, and all other Estates both real and personal… Despite such terminology contemporaries referred to the Monthly Assessments as land taxes” (Beckett). The difference between the assessment and the subsidy was thus, first of all, that the central government abandoned the attempt to manage or enforce household-level assessment itself, and instead devolved this responsibility upon local elites in the counties. Doing so obliterated the distinction that had existed in the subsidy between urban and rural sectors of the economy, taxed at different rates, and it seems that, in practice if not in theory, the burden of the Assessment fell mainly on landed wealth. This shifting of the tax burden to land was a legacy of the ascendancy of commercial elites during the Commonwealth; now, the question was how it was to be reconciled with the restoration of the King.

The point, for Petty, of intervening into this debate was to present an argument for why Parliament should shift taxes away from land onto “labour” (by which he actually meant capital in the sense of urban commercial interests), and, in addition, when land *was* taxed, should shift the tax burden away from marginal lands and on to real estate in the core. In order to make this argument, he needed to introduce the theory of capitalized value into the debate: to introduce the idea that the correct object of taxation was not revenue streams, whether in kind or in money, but rather the capitalized value of those revenue streams discounted into the present. To begin making this argument, Petty first had to consider two kinds of assets — a landed interest and a commercial interest — each of which throws off a revenue stream of heterogeneous type: land throws of corn, while commerce throw off money. In order to compare these things, it becomes necessary to ask: what is it that you really want, when you invest your capital into overseas commerce, investing money as money in order to gain more money? What happens when you bring your money home to England, and how much is it worth?

The problem is that neither the nominal nor the intrinsic value of money itself seem to be a sufficient measuring stick for commensurating Value across time, since the metal-value of the unit of account and the exchange-value of the metal itself are both known to vary. The power theory of Value, Petty suggests, along with a bit of political arithmetic, can answer this question, by simply measuring the total money supply per capita and dividing it by the price of wages: “if all the money in the Nation were equally divided amongst all the people both then and now, that that time wherein each Devisee had wherewith to hire most labourers, was the richer” (ch.5, par.12). As phrased, of course, this scenario is incoherent, because it abstracts away from the class difference between the sellers and purchasers of labor: if everyone has the same amount of money, which of them are to be the servants? Here, Petty attempts to explain the value of money as a positional good, and, in order to measure it quantitatively, does so by means of a scenario that assumes positionality away by distributing an equal endowment of money. Leaving this fallacy of composition aside, we can nevertheless grasp the point of what Petty is saying: that the returns on foreign investment or export-sector profits are, when valued in terms of their ability to command domestic labor, relative in the sense that everyone who receives such revenues is competing with one another for the same pool of labor available for hire in the non-agricultural sector.

This leads Petty to the conclusion that the class of national investors can, in aggregate, receive a net surplus of real-terms monetary profits only insofar as there exists, alongside money, an increasing supply of corn available to feed an increasing population of non-agricultural laborers (thus, we can see that Petty actually has a corn-theory of Value, and not a labor-theory at all). Given the additional assumption that the ultimate aim of the investing class is to hire servants in London, this poses a problem: the transport cost of grain. As the population available to be hired as servants in London grows, the logistical network supplying the city with corn must become more spatially expansive: “if the said five Shires did already produce as much Commodity, as was by all endeavour was possible; then what is wanting must be brought from a far, and that which is near, advanced in price accordingly” (Ch. 5, par. 14). To put it in anachronistic language that nevertheless adequately expresses Petty’s point, the marginal farm available to be brought into the City’s logistics network will also have a marginally higher transport cost for bringing its produce to market, with the result that farms with identical “intrinsick” values (corn surplus per acre) might nevertheless have different “extrinsick or acidentall” values (net money rents) depending on their spatial location.

By means of the distinction between intrinsic and extrinsic value of land, Petty introduces the assumption of marginally declining net-revenues for agricultural land. But this alone would not be sufficient for his argument. Thus Petty postulates in addition to this a marginally declining rate of capitalization: land, he explains, sells for a higher “years-purchase” in the core (on account of “special honour, pleasure, priviledge or jurisdiction”) and at a lower “years-purchase” in the periphery, such as in Ireland, on account of factors such as “frequent Rebellions,” legal insecurity, and underpopulation (Ch. 4, par. 22-27).

Put together, Petty’s theoretical framework has two important practical implications for tax policy. The first is that, if the urban commercial interests should try to push the burden of taxation off of themselves and onto the agricultural sector (as they did during the Commonwealth), then they would in reality only be attracting more investment into a zero-sum competition with themselves: no matter how much of a return in money-terms they made for themselves, they would simply be inflating away the real value of these returns by competing for the same pool of available servants. The second implication is that, if taxes on the revenues of the agricultural sector were set as a percentage of rents, then this would effectively shift the burden of taxation away from core lands and onto peripheral lands, discouraging investment into bringing new peripheral lands into the logistical network feeding London. If, on the other hand, taxes were assessed according to capitalized value, then they would be appropriated calibrated to the true worth of each tax payer, and avoid introducing any such “distortions” — distortions that would both provoke dissatisfaction with the regime, on the one hand, and impede the pursuit of what, on Petty’s view, everyone should really want: a larger available pool of non-agricultural labor.

Such a tax regime, Petty suggests, would even throw off what we would now call a positive externality by improving the ability of the London credit markets to accurately assess everyone’s creditworthiness: “Credit every where, but chiefly in London, being become a meer conceit, that a man is responsible or not, without any certain knowledge of his Wealth or true Estate… Whereas I think… the way of knowing his Estate being to be made certain, and the way of making him pay what he owes to the utmost of his ability, being to be expected from the good execution of our Laws… if every mans Estate could be alwayes read in his forehead, our Trade would much be advanced thereby” (Ch 5. par. 17-18). In other words, Petty suggests, the same empirical project of information-gathering that would allow tax assessments to accurately reflect the capitalized value of wealth would also enable that wealth to more effectively collateralize credit: to the benefit of society at large.

To summarize: William Petty has been deeply misunderstood by the literature in the history of economic thought, beginning with a confusion probably stemming from Marx himself that sought to find in Petty’s writing an embryonic form of the labor-Value concept. From this perspective, Petty’s numerical examples are incoherent, and one can only dismiss him as confused. But in reality, Petty does not have any labor-Value concept, in the sense of a concept of the Value of commodities being somehow determined by the amount of labor it took to produce them. Instead, he has a theory of capitalization-rate parity (adjusted for risk), and a labor-commanded theory of the real value of money, which (combined with the assumption that wages are held at metabolic subsistence) amounts to a corn-theory of Value rather than a labor-theory.

4. Commercial Realism

As we have seen, William Petty’s economic thought was basically oriented around the problem space of a domestic balance of economic power in the context of a factional dispute between landed and commercial classes over the distribution of the tax burden. His intervention into this dispute revolved around two fundamental concepts: capitalized value, on the one hand, and a Hobbesian “power theory of value” according to which the “real” value of money could be given by a comparison to the price of domestic labor. The upshot of this argument was directed at the commercial classes and sought to convince them that their efforts to shift the tax burden away from themselves and onto (marginal) landholders like Petty were in fact self-defeating, since the effect was to discourage precisely those investments into an increased supply of food that would make it possible for their overseas commercial profits to translate into increased real wealth at home.

Petty’s primary question is thus a political one: how should wealth be assessed and measured for the purposes of administering taxation? But in order to answer this question, he has to introduce another question, for the purposes of supplying his premise: what is the “real” value of money? Petty’s problem space is thus given to him by his own interests as an investor in “marginal” Irish land and by an anxiety about the “real” value of money. For this reason, Petty can indeed by read as the foundational thinker for economic thought, but for different reasons than those given by Marx. Economics, as a problem space for thought, becomes possible when it begins to be able to be taken for granted that money itself is not and cannot be the goal of economic activity. Money is worthless “in-itself,” because its value is purely positional; the power of the money held by any one person is relative to the power of the money held by others. Thus, money becomes a mere sign whose referent is in need of theoretical explanation: once this referent is given, we can look through money at what it really represents, which will enable us to defuse conflicts that threaten to become zero-sum games within the political body itself and redirect those energies towards the pursuit of some absolute good (“what we all want”).

Unfortunately, Petty’s “power theory of value” involves a fallacy of composition: how much labor could each man command with his money, if each man had an equal share of the total domestic monetary supply? Since the answer to this question, as posed, is obviously “zero,” Petty’s solution to the problem involves an implicit separation of the population into subjects and objects of monetary wealth, without any grounding for the distinction. In Petty’s theory, the laboring population itself provides the real basis of monetary value, and can be assessed as though it were a form of capitalized wealth: in other words, there is nothing in Petty’s theory to distinguish the English working class from slaves. Indeed, the analogy that he wants to draw in order to establish the possibility of a parity between land and labor implies exactly this: that the laboring population just is the “wealth” of the commercial classes in a way that is strictly analogous to the way that the land is the wealth of the landed classes. Furthermore, Petty’s theory involves the assumption that there exists land at the margin available for investment — an assumption that sits uneasily with his pronouncements against the advisability of foreign military adventures.

For these reasons, Petty’s attempts to formulate a concept of non-positional economic value are haunted by two remainders of positionality, both of which are seized on by Richard Cantillon in his critical rejoinder to and elaboration of Petty’s theoretical framework. The first remainder is Petty’s assumption that a country might pursue a form of “absolute” economic value by focusing its efforts on enlarging the available supply of non-agricultural labor: an assumption that begs the question of who hires the servants and who does the serving. Against this, Cantillon observes that free labor cannot be capitalized. He points out, against Petty, that the corn-wage must be determined not only by the metabolic upkeep of the worker himself, but also by the metabolic costs of replacing the labor force: the worker must make enough to feed his family and replace himself. In a slave system, Cantillon points out, the slave-owner can capitalize the value of the laboring population, because he can sell off excess labor force as a capital good — an option not available to an employer of free laborers: "it will always be more profitable for the owner to maintain his slaves than to maintain free peasants, because when he has raised too many slaves for his requirements, he can sell the surplus, as he does his cattle, and obtain for them a price proportionate to what he has spent in rearing them” (I.xi, p 61). In saying this, Cantillon eliminates the assumption that Petty wanted to smuggle in when he assumed that the real value of money could be given by comparison to the wage: an assumption that elides the difference between free workers and slaves and ignores the fact that free workers are themselves the owners of the capitalized value of their labor. Recognizing this fact makes the wage-rate itself a positional rather than an absolute value, at which point it can no longer serve as the reference rate by means of which other positional values can be re-described in absolute terms.

Having rejected this Pettian assumption, Cantillon proposes his own resolution of the matter by rejecting another: the assumption that there exists marginal land at the frontier available for investment. Cantillon was perhaps especially predisposed to insist on this point against Petty as a result of the fact that he was himself descended from a family of landholders in Ireland who had been dispossessed by the New Model Army — some of whose lands may very well have ended up in the hands of Petty himself. Thus, for Cantillon, territorial expansion itself could only be a zero-sum game between competing national states. This restriction allows Cantillon to theorize something that Petty had mostly ignored: the balance of economic power between, rather than within, national political units. His point, basically, is to theorize international exchange of goods as effectively equivalent to a swap of land between two countries: if France exports wine from Champagne and imports lace from Belgium, then we can imagine that this situation is equivalent to France trading the land on which the grapes are grown for the land used to grow the flax (plus the land needed to feed the laborers in each case) (I.xv, 89-90). According to Cantillon, this is the principle on which the relative advantage or disadvantage of international commerce should be judged: if a country gives up the products of a large amount of land in order to buy the products of a smaller amount of land, then it will, in general, be on the losing side of the trade.

Cantillon’s concern is understandable given his French audience in a context of anxiety about losing out relative to more commercially and industrially developed nations in the Low Countries (a concern shared by the English thinkers), and it contains the kernel of what we might now call “dependency” or “world-systems” theory: that there exists some kind of asymmetry of exchange relations between countries that export primary products and those that import them, with the former generally losing out to the latter, even — and this is crucial — in the condition that the bilateral trade balance is zero, such that the entire business can be carried out via bills of exchange rather than specie flow. In the example Cantillon hypothesizes — that France is exporting agricultural goods in exchange for Belgian luxuries — it is as though the fields used to produce the wine were really in Belgium, while the fields used to produce the luxuries were really in France. Cantillon’s argument is that, since the land being used for export goods in France is much larger, it’s as though France had ceded lands to Belgium. Cantillon thus reframes a debate about trade as a debate about territory, and thereby explains the seeming paradox that played such a role in early modern economic thought: how could it be that a small mercantile city could prove more powerful on the world stage than a large territorial monarchy? Cantillon answers this by arguing that, while the city only seems small, in reality much of the territory of the monarchy lay within the commercial city’s economic sphere of influence even if not under its nominal political control. In doing so, he frames commerce as an extension of conquest by other means.

5. Not Only the Par, but Also the Spread

When Petty attempted to establish a par between land (an asset allowing an investment of corn to produce a surplus of corn) and labor (an asset allowing an investment in money to produce a surplus of money), he could do so only by assuming that the real value of money could be given by the price of corn and the corn-price of labor (a corn-and-thus-labor-commanded concept of real Value). Making this assumption required him to assume that everyone who mattered was short labor in the sense of wanting to buy more of it: that everyone, in other words, was a member of the class that owned assets and hired servants. This assumption effectively excised the English working population from the social body and made them discursively indistinguishable from slaves, whose capitalized labor was directly encoded as an asset.

Cantillon, by contrast, in recognizing the freedom of the laborer, had to admit that there existed within the social body those who were long the price of labor in the sense of having it and wanting to sell it, and who might therefore drive up the metabolic price of labor (or the “real standard of living”) in a country whenever they were in a position of power vis-a-vis other social classes that enabled them to do so. In a free society, the asset that was labor could be assumed to be owned by the person whose labor it was, with the consequence that land and only land could serve the purpose of a reference asset in terms of which other assets (including the “virtual” asset composed of a commercial firm as a going concern) could be priced. This meant that the value of labor and incomes accruing to labor would have to be reduced to, or re-described in terms of, land.

It was from this starting point that Cantillon introduced into economics a concept that was not yet present in Petty, and which was the true basis of the so-called “labor theory of Value”: a theory of Value as an embodied substance that was the “congealed” result of the production process across the entire vertical production hierarchy from raw materials to finished goods. Introducing this theory was Cantillon’s way of making good on his promise to correct Petty’s shortcomings; Petty, according to Cantillon, although he “considers this par between land and labor as the most important consideration in political arithmetic,” nevertheless failed to ground his science on the basis of “natural laws because he has attached himself, not to causes and principles, but only to effects, as Mr. Locke, Mr. Davenant, and all other English authors who have written on this subject, have done after him” (I.xi, 64-65).

What Cantillon meant by this was that Petty had simply assumed that the rate of capitalization should be the same between the agricultural and commercial sectors in aggregate: that the average rate of capitalization for urban commercial wealth should be identical to the rate of capitalization of the average farm, which was neither over-capitalized as a result of proximity to the core nor under-capitalized as a result of its marginal insecurity. Cantillon, by contrast, believed himself to have produced a theory that could explain why the rate of capitalization in the two sectors might vary, both within a country over time and between countries across space, as an aspect of a cyclical phenomenon that could and should become the object of manipulation by state policy. Cantillon thus attempted to do something that had not been a concern of Petty: describe the economic system in dynamical terms, as possessed of “laws of motion” that might be understood and consciously altered by state policy.

How did the introduction of an embodied-Value concept enable Cantillon to do this? It allowed him to side-step the problem that, within a closed economy and assuming a population of free labor, the relative value of land and labor could not be anything other than an arbitrarily given result of a positional struggle between social factions. Instead, he could now describe the relative value of land and labor within a given country as a function of that country’s position within a hierarchy of international trade. Doing so allowed him to banish any lingering positional values into the foreign sector: sure, Cantillon admitted, there is something about the framing of the economic problem space that makes it impossible to banish positional values entirely from the analysis, but this merely implies that it should be the object of economic policy to make sure that positional conflicts take place between different national economies rather than being allowed to “leak” into the interior of the domestic social body. What really matters about the relative values of land and labor, he insists, is not the relationship between *our* land and *our* labor, but between *our* labor and *their* land. And since *our* labor can really be described in terms of the products of the land that constitute the costs of that labor, ultimately it all boils down to a spread between the differing values of land in different countries. And the goal is to sell the products of our land dearly and buy the products of theirs for cheap.

Cantillon is able to describe things in this way because he now has two different concepts of Value operating at once, and is therefore now able to describe one thing as having two different real prices according to the different measures. One is a Value-commanded theory: the value of an exported commodity is given by the amount of *their* land we can incorporate into *our* “virtual” territory by exporting it. The other is a Value-embodied theory: the value of an exported commodity is given by the amount of *our* land whose metabolic substance it embodies. Since both of these different values are denominated in the same units, they can be directly compared to one another: if a commodity embodying one standard-European-acre of value is traded for a commodity embodying two standard-European-acres of value, then the country exporting the first commodity is the winner; even, and this is the really crucial point, if the money-prices of the two commodities are the same and thus the balance of trade in monetary terms sums to zero. In this way, Cantillon reduces the question of a par between land and labor within a country to the question of a spread between the value of land in different countries.

6. The Rise (and Rise) and Fall

Cantillon’s theory thus provides a clear formulation of the goal of economic policy in a such a way that it could be achieved even in the absence of a positive trade balance or current account surplus, and while avoiding the implication of any purely positional or zero-sum struggle within the social body: the point was to incorporate, through commercial exchange, more “virtual” territory into the sphere of your economic influence than you allowed to be incorporated into that of rival powers. The goal had to be formulated in this way in order to side-step the puzzling fate of the Spanish Empire, whose fabulous American treasure had catapulted it to a position of European dominance only to seemingly abandon it to “decline” and defeat at the hands of some tiny, upstart provinces. Thus, to thinkers in the 16th and 17th centuries, it was increasingly clear that, although a scarcity of money within a state was certainly a bad thing, an “abundance” of money was not necessarily a good thing either. Rather, additional conditions would have to be supplied that explained the difference between what might otherwise be two indistinguishable states of affairs: that in which there was more money, which was a good thing, and that in which there was more money but it wasn’t.

Despite the differences between Petty and Cantillon, therefore, what unites their paradigm is the shared problem of how to explain what money “really is” in such a way as to dispel the illusion that the accumulation of money *as such* is a rational end of public policy. In other words, they both sought to explain why it was not a surplus of money itself that ought to be accumulated, but rather a surplus of that which makes it possible for there to be more money in “real” terms. Petty, who conceived of the foreign sector purely as an imaginary Peru where monetary investments produced monetary revenues, or as an all-too-real Ireland where additional land was available “for free”, had merely assumed that the domestic economy might be indifferent to absolute increases in the money supply: everyone could have more money without anyone thereby being better off. Cantillon went further by assuming that an absolute increase in the money supply might actually be bad for a country, as illustrated by the case of Spain and figured by the trope of “luxury”: “Merchants are the first to make their fortunes, then the lawyers may get part of it, the prince and tax collectors get a share at the expense of all the others, and distribute their graces as they please. When money becomes too plentiful in the state, luxury will follow and the state will fall into poverty… This is roughly the cycle that may be experienced by a large state which has both capital and industrious inhabitants. A talented public administrator is always able to begin the cycle over again” (II.viii).

Cantillon’s problem is to explain how a country can ascend the global value hierarchy — by “virtually” swapping less of its land for more of others’ land — without thereby making its products “uncompetitive” on global markets and thus initiating the falling half of the cycle into luxury and poverty. In making this argument, Cantillon wishes to avoid making the claim that high prices for land or high wages are, themselves, the cause of decline: indeed, having a lot of money in the state, and therefore having high prices, is seen as desirable, since if French land and labor is expensive then it will trade at a favorable ratio for the (virtual) land and labor being imported from abroad. The whole point is to sell expensive French stuff for cheap foreign stuff! In order to avoid this, Cantillon formulates a theory of what we now call the “business cycle” as being produced by the dynamics of an investor life cycle.

In order to illustrate the cycle, he first considers the “Spanish” case in which a country creates more money by simply digging it out of the earth. Cantillon argues that, in this case, the increased money supply will produce distributional conflict within the country, as the “entrepreneurs, the smelters, refiners, and all the other workers” will have more money and consequently seek to improve their living standards. In doing so, they will bid up the price of “meat, wine, or beer… better clothes… finer linens… and other desirable goods.” Those who “suffer from these high prices” will be “first of all, the property owners, during the term of their leases, then their domestic servants.” The rising prices of non-subsistence goods, he suggests, will prompt the property owners to retrench by downsizing their households and perhaps even emigrating from the country. As the introduction of new money continues there will ensure an open ended distributional struggle as landlords raise their rents upon the expiration of the leases, at which point they will re-hire their servants, which will force “artisans and manufacturers” to raise their prices in an attempt to keep up with the rising cost of living. All of this will lead the country to ruin as its value-added exports decline in competitiveness on the export market.

He then moves on to consider a slightly different scenario: one in which the increase of money in the state derives from a positive net trade balance: “the annual increase of money… will gradually increase the consumption… and raise the price of land and labor. But the industrious people who are eager to acquire property will not at first increase their expenditures. They will wait until they have accumulated a large sum from which they can draw a secure interest income… Once a large number… have acquired considerable fortunes from this money… they will not fail to increase their consumption and raise the price of everything.” This process “will not fail to increase consumption, raise the price of everything…. Unless additional products are drawn from abroad” (II.vi). Basically, Cantillon imagines that it is the goal of the entrepreneurs to cease being entrepreneurs and become rentiers instead, by plowing their profits from foreign trade into a portfolio of landed (or financial) investments. There is thus a “virtuous” and a “vicious” phase of the life cycle of the entrepreneur, such that, in the first phase, their net profits are potentially non-inflationary, while, in the second phase, their profits-become-rents can continue to be non-inflationary only insofar as the trade surplus was accompanied by a net increase in the state’s “virtual” territory or sphere of economic influence.

There are a number of consequences of this model. One is that a state cannot become rich, even by running a trade surplus, if this trade surplus is derived from the export of primary sector products. It is not the size of the trade surplus denominated in money that matters in the long run, but its size denominated in land (which may be positive or negative even when the monetary balance of trade is zero). Another consequence is that the state ought to pursue, as a policy objective, the prolongation of the “virtuous” half of the cycle and the attenuation of the “vicious” half. Cantillon’s recommendation — and here he departs decisively from the problem space of William Petty — is that the state ought to engage in an interventionist fiscal policy, whose goal is not simply to fund the “publick charge,” but rather to manage and stabilize what would otherwise be an autonomous (and inter-generational) economic process of the accumulation of wealth and the collapse into decadence: “When a state expands by trade, and the abundance of money raises the price of land and labor, the prince or the legislator ought to withdraw money from circulation, keep it for emergencies, and try to slow down its circulation by every means, except compulsion and bad faith, to prevent its goods from becoming too expensive and avoid the drawbacks of luxury… However it is not easy to perceive the opportune time for this, or to know when money has become more abundant than it ought to be… Therefore, princes and heads of republics do not concern themselves much with this sort of knowledge and strive only to make use of the abundance of their state revenues… leaving monuments of their power and wealth is perhaps the best they can do because according to the natural course of humanity, the state must collapse on its own, they only accelerate its fall a little. Nevertheless, it seems that they should try to make their power last during the time of their own administration” (II.viii).

Cantillon turns Petty on his head: rather than seeking to understand the structure of the economy in order to maximize potentially taxable revenues for the state, Cantillon seeks to understand the structure of the economy in order to make use of the fiscal system as a “lever” for economic policy. In Petty, taxation was the object of the economy: one analyzed the economy in order to understand the conditions of possibility for taxation. In order to do so he postulated the existence of an ideal tax function under which taxation could be set at any arbitrarily desired level without affecting the domestic balance of economic power. For Cantillon it is the other way around: the economy has become the object of taxation, in the sense that the point of analyzing the economy is to understand how it responds to changes in the taxation function, so that taxation can be used in order to manipulate the economy in the service of a rational geopolitical-commercial policy program that could resist succumbing to the “money illusion” in preference for keeping its eye on what actually matters: strategic control of the metabolic basis of all wealth. Such a theory is necessary because, unlike Petty, Cantillon has a concept of “the economy” as existing in a state of endogenous disequilibrium: an aperiodic cycle (whose timing is “not easy to perceive”) that would, left to its own devices, merely condemn a state to a perpetual oscillation between an illusion of wealth inevitably followed by the realization of poverty.

7. The Discovery of Growth

The problem space of economic thought shifted again in the later 18th century with the “discovery” of the idea of what we now call “growth”: a positive sum dynamic according to which, by means of the accumulation of capital, everyone could get richer without having to take something away from somebody else (as Petty had, more or less literally, taken away the lands of Cantillon). It will not surprise anyone to hear that they generally framed the conditions of possibility of this positive-sum consumption trajectory as lying in the accumulation of productivity-enhancing industrial capital. The notion that the average prevailing consumption standards had been rising and might be expected to continue to rise was perhaps introduced into the conceptual matrix of economics by Hume, who posed the “curious question of the American inflation” — namely, why the price level did not seem to have changed nearly as much as his calculations of the volume of imported precious metals from the Americas seemed to suggest that they should have: “By the most exact computations, that have been formed all over EUROPE, after making allowance for the alteration in the numerary value or the denomination, it is found, that the prices of all things have only risen three, or at most, four times, since the discovery of the WEST INDIES. But will any one assert, that there is not much more than four times the coin in EUROPE?” He goes on to suggest that the European countries “bring home about six millions a year, of which not above a third part goes to the EAST INDIES. This sum alone, in ten years, would probably double the ancient stock of money in EUROPE. And no other satisfactory reason can be given, why all prices have not risen to a much more exorbitant height, except that which is derived from a change of customs and manners” (“Of Money”).

Hume begins by inverting the empirical puzzle faced by Petty and Cantillon. These earlier thinkers had begun with the problem that what appeared like a “national income” in monetary terms might be merely nominal rather than real: that what appeared to be an increase in wealth, analyzed in terms of money, might disappear when properly analyzed in terms of some other fundamental denominator. Hume begins with the opposite problem: that an astonishing increase in aggregate monetary profits might be even realer than we have a right to expect, in the sense that everyone has somehow been able to accumulate more money without that increase being erased by inflation. The only explanation (Hume suggests, without making any real argument for the proposition) is that this situation could only be possible if it were the product of a “change of customs and manners,” but which he meant simply what we would now call a generally rising standard of consumption.

Hume, using a basket of concepts that are mostly familiar from Petty and Cantillon (plus his own postulation of a “causal time lag” allowing fiscal-monetary policy to be effective in the short run while remaining neutral in the long run) is concerned to argue on the basis of this analysis that the policy of the monetary authority should be focused not on the absolute quantity of money in the country, but rather on its rate of change or first derivative: the rate of growth of the monetary supply that would optimally promote a concomitant growth in the “real” magnitude of the consumption basket denominating the value of money. Hume is thus a transition point in the paradigm shift that separates Smith and Ricardo from Petty and Cantillon: from the analysis of the interface between wealth and taxation not in terms of absolute magnitudes, but rather in terms of rates of growth.

This shift of paradigm raised a problem: rates of growth… of what? This question intensified the earlier problem of the “natural par” because it was no longer a problem about how to measure a ratio between one thing and another — a ratio between the value of different classes of wealth — but a problem about how to measure something in relation to itself. But what would it mean to measure the rate of change of a thing, in relation to itself, if the very fact of its change should imply an alteration of its efficacy as a measure?

At its heart — and this is what we’ve learned from our review of Petty and Cantillon — the metaphysical question about the nature of “capital” is really a question about whether “wealth” is an absolute or a positional good. In other words, is “wealth” something substantial, a Thing that one consumes and enjoys, or is it rather something relative: something derives its value from the fact that one person has more of it than another? Ultimately, it is difficult to come down on one side or another about the question: it does not seem possible to reduce “wealth” entirely to one or the other. It seems that “wealth” is a site of indecision about the difference between absolute and positional value: thinkers like Petty and Cantillon inaugurated the discourse of economics by trying to draw the line between them, to say that one thing (money) was merely positional, in order to say, by contrast, that something else (land, or labor) was actually real. But even these “real” measures have a troubling tendency to resolve themselves into positional ones: what sustains the appetite of the London commercial classes to hire more and more servants, if not to compete with one another in doing so? And what sustains the desire of a country to dominate more and more “virtual” territory, if not the pursuit of an advantageous geopolitical position vis-a-vis its rivals?

What, in the end, is wealth actually for? This is a question that, within the Western tradition, goes back at least to Plato’s Republic, but in the 18th century it was supplied with a new answer: the purpose of the accumulation of wealth, even in private hands, was to serve the ends of society in general by increasing everyone’s standard of living and thereby liberating humanity from the metabolic constraints previously imposed by nature. This new answer was made possible because of a growing focus on investments into “productivity enhancing capital” that would make it possible for wealth to increase even if the absolute magnitude of available labor and land were held constant: a scenario that was (mostly) beyond the problem space explored by Petty and Cantillon. It was this conceptual innovation that made it possible to conceive of “economics” as a sphere of inquiry able to be investigated in a way that was completely disarticulated from “politics,” whether foreign or domestic: a positive-sum game of unleashing humanity’s “productive powers,” rather than a zero-sum game of jockeying for relative position within a country or between countries.

In the trajectory of thought moving away from Petty, through Cantillon, and towards Smith, we can thus observe a certain thematic movement that might even be described as “dialectical”: first, there is the unmasking of a zero-sum struggle for relative position beneath the appearance of a positive value, and then there is the resolution of the struggle by the externalization of a new, non-rivalrous absolute object. Petty begins by unmasking a positive surplus of money, which might otherwise have been thought of as an absolute good, as merely a relative good: a derivative on an absolute supply of domestic labor. This allows him to argue that the goal of policy should be to encourage the incorporation of land at the margins of a country’s logistics network. Cantillon’s move, after this, is to reject the assumption that there exists “new” land at the margin in favor of the assumption that land gained by one country must be lost by another. This “re-relativizes” Petty by resolving an “absolute” surplus of land into a relative surplus between competing economic powers, each of whom is striving to dominate the others’ territory by exploiting a spread in the embodied-Value terms-of-trade between one country and another.

In turn, the later 18th and 19th century thinkers “re-absolutized” Cantillon by relaxing the assumption of a relatively fixed rates of productivity and thus postulating “capital” as a third social class truly distinct from both land and labor. As I argued above, when Petty talked about “labor,” what he really meant was “capital” (as is evident from the analysis of his examples, in which what we would would now call “labor” is simply assumed away), but all he really meant by this was a sum of money invested into producing revenues of money, via some interaction with a rather nebulously defined foreign sector. Cantillon’s retort to Petty was that there were no free goods in the foreign sector available for the taking, but only a real-political competition by means of either direct conquest or indirect economic domination. The 18th century English economic thinkers, by contrast, wished to avoid the implication that the growth of wealth could only come at the expense of a foreign rival, but also wished to avoid the implication that workers were really just slaves; and they avoided both by postulating capital as a third term in the economic matrix, a kind of holy ghost of the factors-of-production trinity possessed with the remarkable ability to generate more of itself, out of itself, without this surplus coming at a cost to anyone else. Capital, unlike land and labor, was imagined as being a classification of wealth whose growth might be unconstrained by any relation to the other two, as the growth of labor had previously been understood to be constrained by the supply of land, and the supply of land in turn constrained by the finitude of the earth.

This conceptual distinction transformed a two-class theory into a three-class theory. No longer was the economic household of the country divided into town and country, between “labor” and “land,” but into wages, rents, and profits and their respective social classes: workers, landlords, and capitalists. Thus, the discovery of growth and the invention of capital in economic thought is not simply the introduction of a new term into a deficient schema, but rather a reorganization of the entire conceptual matrix: a reorganization that allowed these thinkers to explain how investment could be characterized as a non-zero-sum interaction productive of real returns measured in terms of some absolute magnitude of Value. But while the positing of the conceptual category of capital answered the question of “what” it was that might experience open-ended absolute growth, it did not solve the problem of the units that growth was to be measured in. These units, it was felt, could not be measured by simply comparing capital to itself: doing so would pose difficult questions about the difference between capital invested and money lent at interest that would simply lead economics back to Petty’s original question about the conditions of possibility of real, aggregate monetary profits. This meant that the units in which capital was measured would have to be somehow derived from either land or labor. While the French thinkers tried to solve this problem by reducing Value to land, the English reduced Value to labor, instead — and it is their tradition that “won out.”

In the second part of this essay, I will turn to the history of what became of the Value-concept after the introduction of the idea of “economic growth” into the paradigm — a complication that introduces a number of arcane difficulties into the discussion. It is my hope that I may be able to complete the second half of the essay sometime in early 2024; in the meantime, I welcome comment and discussion of what I’ve managed to understand so far.

REFERENCES:

Aspromourgos, Tony. On the Origins of Classical Economics: Distribution and Value from William Petty to Adam Smith. Vol. 22, 1998.

Beckett, J. V. “Land Tax or Excise: The Levying of Taxation in Seventeenth- and Eighteenth-Century England.” The English Historical Review C, no. CCCXCV (1985): 285–308.

Cantillon, Richard. An Essay on Economic Theory: An English Translation of Richard Cantillon’s Essai Sur La Nature Du Commerce En Général. Translated by Chantal Saucier. Auburn, Ala.: Mises Institute, 2010.

McCormick, Ted. William Petty and the Ambitions of Political Arithmetic. Oxford: Oxford University Press, 2009.

Peach, Terry. “Adam Smith and the Labor Theory of (Real) Value: A Reconsideration.” History of Political Economy 41, no. 2 (June 1, 2009): 383–406.

Petty, William. Economic Writings of William Petty. Vol. 2. Cambridge: Cambridge University Press, 1899.

———. Economic Writings of William Petty. Vol. 1. Cambridge: Cambridge University Press, 1899.