THE MEASURING ROD OF LABOUR
IN order to appreciate how the labour-theory outlook is bound up with the welfare analysis of the classical economists it is necessary to inquire into their ideas concerning the nature of the "annual produce" or the national dividend and its relation to the economic welfare of society. This is perhaps the least-explored part of their writings, partly because their opinions on the subject are frequently too amorphous to be easily reducible into clear-cut propositions and partly because the term "value", as they have used it, has the disconcerting habit of changing its meaning from one context to another. But these disjointed notions concerning the measure of "value" and "wealth" deserve a patient study for they seem to lurk at the back of the minds of the classical economists, pervading their whole approach to welfare economics.
The common starting-point of all the classical economists may be summarised by the following propositions: (i) Since the essence of the economic process consists in the application of human labour to natural resources, all items of wealth, with negligible exceptions, originate from labour. In transforming natural resources into finished products labour confers "value" on them and it is the possession of "value" which ear-marks the economic goods from free goods. Labour, therefore, may be regarded as the source and measure of value and wealth and the economic goods relevant for social accounting should be confined to the products of labour. (ii) Labour is a more significant measure of value and economic welfare than money. While money is merely a "nominal" standard, a "veil" over the real or the physical processes of production and consumption, labour is intimately and automatically connected with these processes. Thus, while value in terms of money might be inflated or deflated without corresponding changes in the amount of real goods, value in terms of labour would be less subject to such distortions.
However, when it came to the problem of establishing a precise relationship between the measuring rod of labour, "value" and