Ricardo was the first economist in this country who perceived the necessity of reducing the laws of value to general principles. He calls his work "The Principles of Political Economy and Taxation." But the part relating to political economy is nothing but a treatise on prices or on value.

But unfortunately it is not a treatise on the complete theory of value, but only on a very small part of it. He deals only with the value of material things, and only with a certain part of them - those only which are the produce of human labour. Having then excluded everything from consideration except material things produced by human labour, he lays down the dogma that labour is the foundation of all value. This doctriue has been repeated by numerous writers, and it is the doctrine, coupled with the incautious statement at the beginning of Smith's work, that the real wealth of a country is the "annual produce of land and labour," which, as the Socialists themselves allege, is the foundation of their system. They constantly maintain that working men are the creators of all wealth.

Considering the enormous importance which the subject has acquired, it is necessary to examine the truth of the doctrine that labour is the cause of all value.

Labour certainly is associated with value in some material things, but is it associated with value in all material things? I have already shown you that the space of ground upon which a great city is built has enormous value, but is that value the result of labour?

Look, again, at the great cattle of the field, and flocks and herds of all sorts; they are wealth, but are they the creation of human labour?

McCulloch says that if an object is the free gift of nature it cannot have the smallest value.

Test this doctrine by facts. In the Midland counties of England there are many oak trees which are worth £100 as they stand on the ground before anyone has touched them. Is their value due to labour? It is stated that in 1810 an oak tree was cut down at Gelenas, in Monmouthshire, the wood of which sold for £670, and the bark for £240. Was that value due to human labour?

Some years ago a whale was cast ashore on the beach of the Firth of Forth, and it sold as it lay there for £70. Was its value due to labour?

Some years ago it used to be the fashion for European ladies to imitate their swarthy sisters of Central Africa, and pile huge mountains of hair, termed chignons, on their heads. While this rage lasted a young girl's hair sold for £5, £10, and £20, and even much higher sums. Was the value of the girl's hair due to labour?

These and innumerable other cases which might be cited show that it is utterly erroneous to assert that labour is the cause even of the value of material things.

But labour itself has value. If, then, labour is the cause of all value, what is the cause of the value of labour?

Again, take a Bank of England note, or a great merchant's acceptance for £1,000. It has value. But is its value due to labour?

When a banker discounts a bill for a customer, he gives him a credit in his book for it - that is, he buys one right of action by creating another right of action, and by so doing he gives value for it. Is the value of the banking credit due to labour?

As the strict logical conclusion of his doctrine that labour is the cause of all value, Ricardo maintains that air, heat, and water add nothing to the value of the crops. If this doctrine be true, it would follow that if we were to plant a vineyard in Shetland, the grapes, if they ever appeared, and the wine made from them, would have exactly the same value as the grapes and the wine produced in the vineyards of sunny France.

I am not aware whether any of those whom I have the honour of addressing have ever paid much attention to the doctrines of Ricardo. By some persons, indeed, he is regarded as an authority not to be questioned; but when I bring these doctrines plainly before you in the light of day, I feel sure that you, as men of business, will perceive that they are entirely erroneous.

Why has a bank note or a bill of exchange value? Because it is exchangeable - because it will be paid at the proper time. I have already shown you. that the author of the "Eryxias" saw that money only has value when it is exchangeable. A bank note and money, then, have value for exactly the same reason - because they can be exchanged away for other things.

Why have cattle, flocks, herds, timber trees value? Because there is a demand for them. If all persons were to become Vegetarians, the value of cattle, herds, flocks, etc, would at once die off. What gives value to the vineyards of France, California, and Australia? The demand for wine. If the whole world were to become teetotallers, all value would at once die off from the vineyards of France, California, and Australia.

Thus you see that it is utterly erroneous to assert that labour is the cause of all value. Value manifestly proceeds from demand. All the labour in the world cannot confer value on anything when there is no demand for it. If all the warehouses in Manchester were groaning with goods, and no one came to buy them, where would their value be?

You will at once perceive the importance of these obvious truths; for they at once cut away the ground from that dreaded Socialism which is such a disturbing force at the present day. Read their own utterances, read that mass of incomprehensible jargon Karl Max's "Capital," and you will see that all the claims of the Socialists are founded on the exploded doctrines of Smith and Ricardo - that labour is the cause of all value, and that working men are the creators of all wealth. Is it working men who create the great cattle of the field, or the trees of the forest? Did working men create corn, or did they make it grow? Did working men create the great sciences which have done so much for mankind, and by which so much of their labour is directed? Did working men create the skill of our advocates, or physicians, and other professional men? Did working men create the skill, and the foresight, and the personal credit of our great merchants and bankers, by whom the infinitely greater part of modern commerce is carried on?

The very labour of the working man himself has no value unless there is a demand for it.

Thus you see of what supreme importance it is to rectify the fundamental ideas of economics, and what boundless mischief rash statements produce when repeated by incautious men.

The last writer I need cite here is Whately. In his lectures as professor at Oxford, he points out the inconvenience of the name of political economy. He points out that Smith's name for his work only indicates the subject matter, and not the science itself. He points out that it has only to do with things so far as they are subjects of exchange. He therefore proposed to designate it as Catallactics, or the science of exchanges.

You will now observe that up to this time it was perfectly well understood by all economists that, as a positive science, economics is the science of commerce, or of exchange, or the theory of value. The expression production, distribution and consumption of wealth, was an extremely awkward one, but still its originators clearly explained that they meant nothing but commerce or exchange by it. Numerous other writers had simply defined it as the science of commerce; and so long as there was a general agreement as to its fundamental nature there was good hope of progress, because the ideas of its founders could be expanded, modified, developed, and rectified.

It is well known that almost every one of the other great sciences, Astronomy, Optics, Heat, Chemistry, and so on, have undergone great revolutions of opinion, modification, rectification, and expansion, and have thus been progressive sciences. And so it might have been at the present day with economics, if economists had steadily kept in view the original conception of the science. The first school of economists considered only the commerce in the material products of the earth. Adam Smith devoted great attention to the commerce of labour, but with the exception of a few perfunctory remarks on bank notes and bills of exchange he does not seem to have the slightest idea of the magnitude and importance of the commerce in rights, which is the most colossal branch of commerce at the present day, and includes the whole principles and mechanism of credit, banking, and the foreign exchanges.

Now you will at once perceive that so long as it was clearly understood that economics is the science of commerce in general, it was perfectly easy to introduce any new branch of commerce which had not been fully developed.

Now, if the early economists had reflected on the nature of the commerce in rights, if they had observed that Smith himself classes bank notes and bills of exchange as circulating capital, they would have seen that exchangeability is the sole essence and principle of wealth; they would have seen the absolute necessity of discarding labour and materiality as necessary to value; and they would never have given rise to Socialism by maintaining such erroneous doctrines.

It is quite evident that under the general term of commerce it is quite as easy and natural to treat of the commerce of rights as to treat of the commerce of material products or of labour.