Letters of David Ricardo to Thomas Robert Malthus, 1810-1823 Part 6

XX.

GATCOMB PARK, _23rd Oct., 1814_.

MY DEAR SIR,

On the day that you were writing your last letter to me, I was travelling to London with Mrs. Ricardo, where my business detained me a little more than a week. On my return your letter was delivered to me. I am sorry that you cannot make it convenient to pay us a visit at Christmas. I shall however depend on your not allowing any common occurrence to prevent you and Mrs. Malthus from favouring[67] us with your company during your next summer vacation. I hope you will not repent having set me the example of using a larger sized paper. If you are tired with my long letter, you only will be to blame for it.

It does not appear to me that we very materially differ in our ideas of the effects of the facility or difficulty of procuring food on the profits of stock. You say that I 'seem to think that the state of production from the land compared with the means necessary to make it produce is almost the sole cause which regulates the profit of stock and the means of advantageously employing capital.' This is a correct statement of my opinion, and not, as you have said in another part of your letter and which essentially differs from it, 'that it is the _quant.i.ty_ of produce compared with the expense of production that determines profits.' You, instead of allowing the facility of obtaining food to be almost the sole cause of high profits, think it may be safely said to be the main cause, and also a difficulty of acquiring food the main cause of low profits. There appears to me to be very little difference in these statements. You infer that my doctrine is not correct because improvements may take place in agriculture or manufactures, because new leases may not be granted precisely at the time of the rise in the price of raw produce, and because the price of labour may not rise without delay in the same proportion. But improvements in agriculture or in machinery which shall facilitate or augment production will according to my proposition increase profits because 'it will augment production compared with the means necessary to that production.' The same may be said of the wages of labour not rising in the same proportion as the price of produce. As for old leases affecting the question, you will observe that in calculating the profits made by agriculture we must estimate leases at the value which they bear at the time of the calculation and not at the value agreed upon at an antecedent period. If the question were concerning the profits of a manufactory or distillery for example, we should calculate such profits according to the then value of barley, although a few individual distillers might have been so fortunate as to purchase their barley when it was 25 per cent cheaper. These points then are expressly allowed for in my proposition, and are by no means at variance with it. You add to your statement [']that in the interval between the two extremes (of high profits and low profits caused by facility or difficulty of procuring food) considerable variations may take place, and that practically no country was ever in such a state as not to admit of increase of profits on the land for a period of some duration, from the advanced price of raw produce.' I agree that variations will take place because the means of obtaining produce are not always equally expensive; and, if they should be, the produce itself may become more valuable, and in either case profits will vary. But even during these temporary variations the great cause, namely the acc.u.mulation of capital, may be paving the way for permanently diminished profits. It appears to me important to ascertain what the causes are which may occasion a rise in the price of raw produce, because the effects of a rise, on profits, may be diametrically opposite. A rise in the price of raw produce may be occasioned by a gradual acc.u.mulation of capital, which by creating new demands for labour may give a stimulus to population and consequently promote the cultivation or improvement of inferior lands; but this will not cause profits to rise but to fall, because not only will the rate of wages rise, but more labourers will be employed without affording a proportional return of raw produce. The whole value of the wages paid will be greater compared with the whole value of the raw produce obtained. A rise of raw produce may proceed from one or more bad seasons, which will undoubtedly increase profits because the price of produce would rise considerably more than in the proportion of the deficient quant.i.ty, and would therefore be much ahead of the price [_sic_] of production. An advanced price of raw produce may also proceed from a fall in the value of currency, which would raise the price of produce, for a time, more than it would wages, and would therefore raise profits. Both these you will allow are temporary causes, no way affecting the principle itself but merely disturbing it in its progress.

Restrictions on importation of raw produce may cause a rise in its price which will be permanent or temporary according as the bad policy which dictated the restrictive law may be permanent or temporary. In the first instance profits will be raised; but they will ultimately fall below their former level. From what I have said it will appear that I am of opinion that a permanent rise in the rate of profits on land is never preceded by a rise but by a fall in the price of raw produce; and, though profits may be raised by a rise of the price of produce, they will generally ultimately settle at a rate lower than that from which they started. The converse of this, as it regards low prices of produce, I hold to be equally true. I should be glad to have your sentiments on this point. There may be other causes of high price, which do not at present occur to me.

I allow that no country ever was or can be in such a situation as not to admit of increase of profits on the land, because there is no country which is not liable to lose or waste part of its capital; there is no country which is not liable to bad seasons, to depreciated currency, to a real fall in the value of the precious metals, and to other accidents which will, some permanently and some temporarily, raise profits. You observe that in rich countries profits are often much higher, and in poor countries much lower than according to my theory, to which I reply that profits are very much reduced in the poor country by enormous wages; the wages themselves may be considered as part of the profits of stock, and are frequently the foundation of new capital. In rich countries wages are low, too low for the comforts of the labourers; too large a portion of the gross produce is retained by the owner of stock and is reckoned as profit.

I am not aware that I have underrated the effect of the wants and tastes of mankind on profits; they frequently occasion large profits on particular commodities for short periods, but they do not, I think, often operate on general profits, because they do not often influence the growth of raw produce. Adam Smith, in Book V, ch. i, p. 134[68], concisely expresses what appears to me correct, of the effects of demand on the price of commodities. I go much further than you in ascribing effects to the wants and tastes of mankind; I believe them to be unlimited. Give men but the means of purchasing, and their wants are insatiable. Mr. Mill's theory is built on this a.s.sumption. It does not attempt to say what the proportions will be to one another of the commodities which will be produced in consequence of the acc.u.mulation of capital, but presumes that those commodities only will be produced which will be suited to the wants and tastes of mankind, because none other will be demanded.

The very term 'acc.u.mulation of capital' supposes a power somewhere to employ more labour; it supposes the total income of the society to be increased, and therefore to create a demand for more food and more commodities. You ask 'whether we can furnish to persons of the same incomes a great additional quant.i.ty of commodities without lowering the price so much compared with the price of production as to destroy the effective demand for such a supply, and consequently to check its continuance to the same extent.' We answer this is not our case; we are speaking of larger incomes, not of the same incomes; and instead of antic.i.p.ating a fall in the price of commodities we should expect a rise, because the fall of profits which generally follows acc.u.mulation is in consequence of the increase in the price of production, compared with the price of produce, although they would both undoubtedly rise. You appear to think, indeed you say, 'that you know no other cause for the fall of profits which generally takes place from acc.u.mulation than that the price of produce falls compared with the expense of production, or in other words, that the _effective_ demand is diminished;' and by what follows you seem to infer that commodities will not only be relatively lower but really lower; and this is in fact the foundation of our difference with regard to the theory of Mr. Mill.

You will by this time feel that you have enough if not too much.

Yours truly, DAVID RICARDO.

NOTE.--The pa.s.sage of the Wealth of Nations is as follows:--'The East India Company represented in very strong terms what had been at this time [1730] the miserable effects, as they thought them, of this compet.i.tion [between themselves and the Old East India Company and private traders]. In India, they said, it raised the price of goods so high that they were not worth buying; and in England, by overstocking the market, it sunk their price so low that no profit could be made by them. That by a more plentiful supply, to the great advantage and conveniency of the public, it must have reduced very much the price of India goods in the English market cannot well be doubted; but that it should have raised very much their price in the Indian market seems not very probable, as all the extraordinary demand which that compet.i.tion could occasion must have been but as a drop of water in the immense ocean of Indian commerce. The increase of demand, besides, though in the beginning it may sometimes raise the price of goods, never fails to lower it in the long run. It encourages production, and thereby increases the compet.i.tion of the producers, who, in order to undersell one another, have recourse to new divisions of labour and new improvements of art, which might never otherwise have been thought of. The miserable effects of which the company complained were the cheapness of consumption and the encouragement given to production: precisely the two effects which it is the great business of political economy to promote.'

XXI.

GATCOMB PARK, _18 Dec., 1814_.

MY DEAR SIR,

Since I received your last letter I have been unexpectedly called from home, besides having had friends staying with me, which have prevented me from writing sooner. I have been twice to Bath and once to Cheltenham, and have also been as far as Devonshire, to the old Abbey which Mr. Bentham[69] at present inhabits. I accompanied M. Say, the author of economie Politique, on a visit to him and Mr. Mill[70];--and, had it not been for the incessant rain, we should have had a very pleasant excursion. M. Say came to me here from London at the request of Mr. Mill, who wished us to be acquainted with each other. He intends seeing you before he quits this country. He does not appear to me to be ready in conversation on the subject on which he has very ably written,--and indeed in his book there are many points which I think are very far from being satisfactorily established,--yet he is an unaffected agreeable man, and I found him an instructive companion.

We intend to be in London in the middle of January, and have little doubt that we shall return here quite time enough to receive a visit from Mrs. Malthus and you next summer vacation, so I trust you will not project an excursion to any other quarter.

I perceive that we are not nearly agreed on the subject which we have been lately discussing. I have been endeavouring to get you to admit that the profits on stock employed in manufactures and commerce are seldom permanently lowered or raised by any other cause than by the cheapness or dearness of necessaries, or of those objects on which the wages of labour are expended. Acc.u.mulation of capital has a tendency to lower profits. Why? because every acc.u.mulation is attended with increased difficulty in obtaining food, unless it is accompanied with improvements in agriculture; in which case it has no tendency to diminish profits. If there were no increased difficulty, profits would never fall, because there are no other limits to the profitable production of manufactures but the rise of wages. If with every acc.u.mulation of capital we could tack a piece of fresh fertile land to our Island, profits would never fall. I admit at the same time that commerce, or machinery, may produce an abundance and cheapness of commodities, and if they affect the prices of those commodities on which the wages of labour are expended they will so far raise profits:--but then it will be true that less capital will be employed on the land, for the wages paid for labour form a part of that capital. A diminution of the proportion of produce, in consequence of the acc.u.mulation of capital, does not fall wholly on the owner of stock, but is shared with him by the labourers. The whole amount of wages paid will be greater, but the portion paid to each man will in all probability be somewhat diminished.

I do not recollect ever having allowed that an extension of foreign commerce will take capital from the land, unless we were an exporting country as far as regards corn, in which case my proposition would be true, namely that the rate of profits can never permanently rise unless capital be withdrawn from the land. I am not sanguine about the principle, if true, being of any use; but that is another consideration;--its utility has nothing to do with its truth, and it is the latter only which I am at present anxious to establish. I cannot agree with you when you say that 'without supposing capital to be taken from the land the throwing of new objects of desire into the market will increase the value of the whole ma.s.s of commodities in the country, estimated either in money, or in corn and labour,'--and it is because I think that there will not be a greater value of commodities to be exchanged for the raw produce, or for money, that I conclude no increased profits will anywhere be made. If the ma.s.s of commodities be increased we diminish their exchangeable value as compared with those things whose quant.i.ty is not augmented. If we double the quant.i.ty, or rather double the facility of making stockings, we diminish their value one half, as compared with _all_ other commodities. If we do the same with regard to hats and shoes, we restore the accustomed relations between stockings, hats, and shoes, but not with respect to other things. It is here, I think, that our difference rests, and I hope soon to hear all that you have to advance in favour of your view of the question.

M. Say, in the new edition of his book, p. 99, vol. i, supports, I think, the very [same] doctrine that demand is regulated by production.

Demand [is] always an exchange of one commodity for another. The shoemaker when he exchanges his shoes for bread has an effective demand for bread, as well as the baker has an effective demand for shoes,--and, although it is clear that the shoemaker's demand for bread must be limited by his wants, yet whilst he has shoes to offer in exchange he will have an effective demand for other things,--and if his shoes are not in demand it shows that he has not been governed by the just principles of trade, and that he has not used his capital and his labour in the manufacture of the commodity required by the society,--more caution will enable him to correct his error in his future production.

Acc.u.mulation necessarily increases production and as necessarily increases consumption. Acc.u.mulation of _produce_, if properly selected, _may_ always be acc.u.mulation of _capital_, and it cannot fail to be worth more than it cost, estimated in corn or labour,--and this I think would be true although all our soldiers, sailors, and menial servants were employed in productive labour. It appears to me that the consideration of money value may be the foundation of our difference on this point.

I must leave room for a request which I hope you will not refuse. I dined a little while ago at Mr. Smith's, whom I first met at your house.

Mrs. Smith told me that she had a collection of the handwriting of a great number of men who had distinguished themselves by their writings, and she wished that I would give her a letter of yours to add to her collection. Knowing that I had many which would not discredit you, I a.s.sented; but after I came home I thought I had no right to do it without your consent--which I hope you will not refuse. I should be sorry to disappoint her, and should really cut a poor figure in making my apologies if I did; yet, as my opinion, that I should not do it without your consent, is confirmed by Mrs. Ricardo, I must falter out my excuses if you are inexorable. With kind regards to Mrs. Malthus,

I am, ever yours truly, DAVID RICARDO.

NOTE.--Of Ricardo, Bentham used to say: 'I was the spiritual father of Mill, and Mill was the spiritual father of Ricardo; so that Ricardo was my spiritual grandson. I was often _tete a tete_ with Ricardo. He would borrow a sixpenny book instead of buying it. There was an _epanchement_ between us. We used to walk together in Hyde Park, and he reported to me what pa.s.sed in the House of Commons. He had several times intended to quote the 'Fragment'; but his courage failed him as he told me. In Ricardo's book on rent there is a want of logic. I wanted him to correct it on these principles; but he was not conscious of it, and Mill was not desirous. He confounded _cost_ with _value_. Considering our intercourse it was natural he should give me a copy of his book;--the devil a bit!' (Life by Bowring in Works, vol. x. p. 498.) Then follows a letter to Ricardo, in which Bentham compliments him on his political progress: 'I told Burdett you had got down to _trienniality_, and were wavering between that and annuality, where I could not help flattering myself you would fix,--also, in respect of extent, down to _householders_, for which, though I should prefer universality on account of its simplicity and unexclusiveness, I myself should be glad to compound.' The suggestion of stinginess made by Bentham in the pa.s.sage quoted is sufficiently reb.u.t.ted by Bentham's own biographer, who tells us Ricardo was one of those who guaranteed the funds for Bentham's Chrestomathic School (Bentham, Works, x. p. 484), and by James Mill (Biography, p. 191), when he speaks of Ricardo's unwillingness to accept payment for his article (Sinking Fund) in the Encyclopaedia Britannica on the grounds that, first, it was not worth payment, second, payment was no part of his inducement to write it.

The influence of Bentham on Ricardo's general ways of thinking is discussed elsewhere. In economical theory (if we judge Bentham by his 'Manual of Political Economy,' which was written some years before this time, though not published in England till long afterwards) there was no more than a general agreement between the two men.

XXII.[71]

GATCOMB PARK, _13 Jan., 1815_.

MY DEAR SIR,

I am pleased to learn that you are busy writing with a view to immediate publication[72]. The public pay a most flattering attention to anything from your pen, and you are not fulfilling your duty to society if you do not avail yourself of this disposition to endeavour[73] to remove the cloud of ignorance and prejudice, which everywhere exists on the subjects which have particularly engaged your time and reflection. I hope your notes on Adam Smith are in great forwardness, and that they will soon follow the smaller publications which you are now preparing. I expect that they will not only be very useful in giving correct notions to the public, but also in calling the attention of those who are well informed in the science of political economy to many points which have hitherto escaped their consideration.

I cannot help thinking that Lord Lauderdale was mistaken (and I believe you hold the same opinion as him), in supposing the farmer to lie under any particular disadvantage from not having the monopoly of the home market, whilst so many other trades were enjoying that benefit. You will agree that the monopoly of the home market is eventually of no great advantage to the trade on which it is conferred. It is true that it raises the price of the commodity by shutting out foreign compet.i.tion, but this is equally injurious to all consumers, and presses no more on the farmer than on other trades. If monopolies tend to raise the price of labour, the inconvenience must be suffered by all who employ labour, and will therefore not be particularly injurious to the farmer or landlord. If all the monopolies of the home market were immediately abolished, there would be at least as much disposition to import corn:--if so they do not interfere with the natural course of the corn trade. Lord Lauderdale, with his opinion of the effect of monopolies, is, I think, quite consistent in recommending a duty on the importation of corn.

I thought you maintained that the high or low profits on commerce were totally independent of the amount of capital which might be employed on the land, consequently that high profits might continue as long as commerce was prosperous, whether that was for twenty or for a hundred years. I now understand you to say, that the profits of commerce may take the lead, and may regulate the profits of agriculture for a period of some duration, possibly for twenty years.

I have always allowed that under certain circ.u.mstances profits on agriculture might be diverted from their regular course for short periods, so that we only appear to differ with respect to the duration of such profits; instead of twenty years I should limit it to about four or five.

If with the same labour we could obtain double the quant.i.ty of tin from the mines in Cornwall, after prices had found the[ir l]evel, would the value of the whole ma.s.s of commodities be increased in England? Should we obtain the same quant.i.ty of deals from Norway in exchange for a given quant.i.ty of tin as we now do? Although the ma.s.s of commodities both in the markets of Norway and in those of England would increase by the greater abundance of tin, or of some other commodity, if the labour employed in procuring tin were diverted to other objects, yet the estimated value of all their commodities in corn, money, or any article but tin, would, it appears to me, continue unaltered. It is sufficient that deals can be purchased cheaper in Norway than elsewhere to determine a portion of foreign trade to that quarter, although it should yield no more profits than those of other trades.

On the supposition which you have made of a great foreign demand for our raw produce, there can be no question that more capital would be employed on the land, and I think profits would fall. Such a demand cannot exist in the present situation of the world. Raw produce is always imported into the relatively rich country, and never exported from it, but on occasions of dearth or famine. I have no doubt that, if the free importation of corn is allowed into this country, inasmuch as it will direct foreign capital to foreign land, it will tend to lower foreign profits, and if all the earth were cultivated _with equal skill_ up to the same standard, the rate of profits would be everywhere the same, though the superior industry and ingenuity of particular countries might secure to them a greater abundance of other commodities....

Your club meets, I think, on the 28th.... Pray take a bed at our house....

Truly yours, DAVID RICARDO.

XXIII.

[Headed by Malthus in pencil, _Feb. 1815_. Post Office mark, _Feb. 6_.]

MY DEAR SIR,

I have now read with great attention your essay on the rise and progress of Rent[74], with a view of selecting every pa.s.sage which might afford us subject for future discussion. It is no praise to say that all the leading principles in it meet with my perfect a.s.sent, and that I consider it as containing many original views which are not only important as connected with rent, but with many other difficult points, such as taxation, etc., etc.

I cannot, however, help regretting that you did not consider separately the relations of rent with the profits of stock and the wages of labour.

By treating of the joint effect of the two latter on rent you have, I think, not made the subject so clear as it might have been made.

There are some parts in the essay with which I cannot agree. One of these is the effects of improvements, whether in the practice of agriculture or in the implements of husbandry, on rent. They appear to me in their immediate effects to be beneficial to the farmer only and not to the landlord. All the augmented produce obtained, or the saving in obtaining the same quant.i.ty of produce is, I think, wholly to the advantage of the farmer, and that the landlord only benefits remotely from it, as it may encourage acc.u.mulation and the cultivation of poorer lands. I think too that rents are in no case a creation of wealth; they are always a part of the wealth already created, and are enjoyed necessarily, but not on that account less beneficially to the public interest, at the expense of the profits of stock[75].

Viewing rents in this light, it follows that I must withdraw the concession which I was inclined to make when you first started the question 'whether, in importing corn at a cheaper price than we could grow it, the whole difference of price was saved, or whether some abatement should not be made from the advantage for the loss of rent?'

as I now decide[d]ly think that the whole difference of price would be gained without any deduction whatever. The arguments then of those who contend for a free trade in corn remain in their original full force, as rents are always withdrawn from the profits of stock. I will try, if I have a little leisure, to put my thoughts on this subject on paper, and shall attempt to show that the effects of a tax and of rent are very different as far as regards importation. It may be economical to grow corn if its price is raised merely by taxation, as by importing it a part of the tax would be wholly lost to the country [import]ing it. No such consideration should influence us [with regar]d to rent being lost.

I differ, as you know, as to the effects of taxation on the growth of produce. You appear to me not quite consistent in admitting, as you unequivocally do, that the last portion of land cultivated yields nothing more than the profits of stock, no rent, and yet to maintain that taxes on necessaries or on raw produce fall on the landlord and not on the consumer.