Surplus, Distribution, Prices
Identification of the concept of the surplus is traditionally considered to have been one of Petty’s most important contributions, although his surplus took the partial form of rent (and taxes) and, derivatively, that of rent on money capital (interest):
Suppose a man could with his own hands plant a certain scope of Land with Corn, that is, could Digg, or Plough, Harrow, Weed, Reap, Carry home, Thresh, and Winnow so much as the Husbandry of this Land requires; and had withal Seed wherewith to sowe the same. I say, that 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 the year; and the medium of seven years, or rather of so many years as makes up the Cycle, within which Dearths and Plenties make their revolution, doth give the ordinary Rent of the Land in Corn. (Petty 1662, p. 43)
Rent, which in Petty’s example corresponds to the surplus, is expressed here in physical terms, as a given amount of corn. This is possible because the product is homogeneous, while heterogeneous means of production are all expressed in terms of the single produced good; this includes labour that is assumed to receive its means of subsistence, also expressed in terms of corn (‘what himself hath both eaten and given to others in exchange for Clothes’). The problem of prices is circumvented, for it is implicitly assumed that exchange ratios between produced goods and means of production may be considered as given. The surplus can also be expressed in terms of the number of persons who can be maintained by a group of labourers who produce enough subsistence for themselves and for the others. Like production of luxury goods and services, unemployment thus appears as a way to employ the surplus.
The magnitude of the surplus depends on the number of productive labourers and the level of productivity per worker, as Adam Smith would maintain a century later. Petty then insisted on proposals aiming to provide employment for the greatest possible number of productive labourers, by reducing both unemployment and unproductive labour. Among the elements determining productivity per worker, Petty recalled those that may be called natural, such as ease of access to the sea, availability of harbours and natural avenues of communication or original fertility of land. Much greater importance was, however, attributed to technological and organisational factors, such as land improvements (drainage, irrigation and the like), investments in infrastructure (roads, navigable canals), technical progress embodied in new implements of production and above all developments in the division of labour.
Let us now come to the theory of relative prices, on which we have a number of different elements. The first interpretation, put forward by Marx, credits Petty with a labour theory of value. Petty considers hypothetical sub-systems of the economy within which all necessary means of production are produced and there is a surplus of a single commodity; the ratio between the quantities of labour utilized in two such sub-systems having as surplus two different commodities determines the relative price of these commodities.
We then have a theory of value based on labour and land:
All things ought to be valued by two natural denominations, which is land and labour; that is, we ought to say, a ship or garment is worth such a measure of land, with such another measure of labour; forasmuch as both ships and garments were the creatures of lands and mens labours thereupon. (Petty 1662, p. 44)
This passage (and the formula that Petty 1662, p. 68, uses to state his theory of value: ‘labour is the father and active principle of wealth, as lands are the mother’) should not be interpreted as a rudimentary statement of a theory of absolute value. These are traditional mottos, widely used for indicating the diverse roles of labour and land in production (the former playing the active, the latter the passive role: an idea that can be traced as far back as the writings of Aristotle); it is easy to see how such an idea might provide the basis for a theory of labour value grounded in the doctrines of ‘natural law’, conceiving labour as sacrifice. The price is, then, the ‘just’ reward for such sacrifice, precisely because it is proportional to the sacrifice endured. However, such a ‘natural law’ interpretation would be erroneous, since Petty considered labour as simply another production cost that is measured by its subsistence and ignored any possible moral implication of justice or injustice in his treatment of the problem of prices. Furthermore, in Petty’s view, land and labour were to be placed on the same footing and the one could be expressed in terms of the other. In fact, ‘the most important consideration in Political Oeconomies’ was precisely ‘how to make a par and equation between lands and labour, so as to express the value of any thing by either alone’. For this problem Petty proposed a solution based on comparison between two sub-systems producing different quantities of food on the same quantity of land, but in one case using and in the other not using labour as a means of production: the difference between the two products corresponds to the wages of the labour employed in the first case.
Finally, we have an interpretation of Petty’s theory of prices as based on physical costs of production. Petty repeatedly insisted on this idea, providing lists of the commodities required for some productive processes. In comparison, the reduction of costs to labour alone, or to labour and land, appears as a simplification. In any case, what is relevant here is the objective approach systematically followed by Petty by reducing prices to the difficulty of production: an approach that, as we shall see, was to be taken up by later Classical economists and Sraffa, with greater consistency and analytical rigour.
Petty’s contribution did not go much beyond simple formulation of the problem: heterogeneous goods cannot be summed together to make up costs of production unless they have been previously expressed in homogeneous units, that is, in terms of quantities of value obtained by multiplying the quantity of each commodity required in the process of production by its relative price. We are thus confronted with a circularity problem: the price of the product cannot be determined unless the prices of the means of production are known, but these are also produced by means of production that may include the first product. This difficulty may account for the attempts to reduce the heterogeneous components of the cost of production to primary factors alone, labour or labour and land; but such attempts also fail to solve the problem. The incompleteness of the conceptual scheme set out by Petty, and in particular the absence of a key concept such as the rate of profits, seems to have been decisive in preventing further advance to a correct solution of the problem, through construction of an analytical system that takes into account productive interrelations among the different sectors of the economy. But the path that leads to such a system is very long, as we shall see in the following chapters.
-  Petty 1691a, p. 181; the same problem had already been raised also in A Treatise of Taxesand Contributions (Petty 1662, p. 44).