Gatcomb Park,24 Nov., 1820.
My dear Malthus,
I have been living in a state of great uncertainty whether I should be obliged to go to London or not. It seems to be settled that Parliament will be prorogued, and therefore I do not think it necessary to take a journey to town for the sole purpose of hearing the usher of the black rods give his three taps at the door of the House of Commons with his rod of office, and which [sic] we are assured by Hobhouse would be laid about his back, if he presumed so to disturb a reformed House of Commons. The political horizon does not appear to be clearing up. It is always unwise for a Government to set itself against the declared opinion of a very large class of the people, and it is more particularly so when the point in dispute is one trifling in itself, and of no real importance to the state. Should the public be kept in this agitated state on a question whether the Queen should be allowed a palace, or whether her name should be inserted in the Liturgy? Nothing can be more unjustifiable than to risk the public safety on such questions as these, for after raising the discussion there is no safety either in yielding or resisting.
You say in your last letter 'that you are fortified withnew arguments to prove demonstratively that a neat revenue is absolutely impossible under the determination to employ the whole produce in the production of necessaries, and consequently that if there is not an adequate taste for luxuries and conveniences or unproductive labour, there must necessarily be a general glut.' I shall not trouble you to bring forward these arguments, for with a very slight alteration I should entirely concur in your proposition. If I recollect right, it is the very exception which I made[231]and which you mention in your book. You must collect your stock of arguments to defend more difficult points than this.
I am quite sure that you are the last man who would misstate an adversary, knowingly, yet I find in your book some allusions to opinions which you represent as mine and which I do not really hold. In one or two cases you, I think, furnish the proof that you have misapprehended me, for you represent my doctrines one way in one place, and another way in another. After all the difference between us does not depend on these points; they are very secondary considerations.
I have made notes on every passage in your book which I dispute, and have supposed myself about publishing a new edition of your work, and at liberty to mark the passage with a reference to a note at the bottom of the page. I have in fact quoted three or four words of a sentence, noting the page, and then added my comment. The part of your book to which I most object is the last. I can see no soundness in the reasons you give for the usefulness of demand on the part of unproductive consumers. How their consuming, without reproducing, can be beneficial to a country, in any possible state of it, I confess I cannot discover. I have also written some notes on M. Say's letters to you, with which I am by no means pleased. Heis very unjust to me, and evidently does not understand my doctrine; and for the opinions which we hold in common he does not give such satisfactory reasons as might, I think, be advanced. In fact he yields points to you, which may almost be considered as giving up the question, and affording you a triumph. In Say's works generally, there is a great mixture of profound thinking, and of egregious blundering. What can induce him to persevere in representing utility and value as the same thing? Can he really believe that our taxation operates as he describes[232], and can he think that we should be relieved, in the way he represents, by the payment of our national debt[233]?
I shall not dispute another proposition in your letter. 'No wealth,' you say, 'can exist unless the demand or the estimation in which the commodity is held exceeds the cost of production.' I have never disputed this. I do not dispute either the influence of demand on the price of corn or on the price of all other things; but supply follows close at its heels and soon takes the power of regulating price in his [sic] own hands, and in regulating it he is determined by cost of production. I acknowledge the intervals on which you so exclusively dwell, but still they are only intervals. 'Fifty oak trees valued at £20 each do not contain as much labour as a stone wall in Gloucestershire which costs £1000['][234]. I have answered your question; let me ask you one. Did you ever believe that I thought fifty oak trees would cost as much labour as the stone wall? I really do not want such propositions to be granted in order to support my system....
I am, Ever truly yours,David Ricardo.
[Minchinhampton,29 Nov., 1820.]
My dear Malthus,
... I am very glad to hear of your intention of paying me a visit here. I hope it will be for a longer time than you mention. I am desired by Mrs. Ricardo to say that it would give her great pleasure to see Mrs. Malthus and your three children.... There is a coach which leaves London three times a week at five o'clock in the evening, on Monday, Wednesday, and Friday. This coach goes to Minchinhampton, one mile from our house; it carries four inside, travels at a very good pace, and sets off from the Angel Inn, St. Martin's-le-Grand. There is also a morning coach which goes from Gerard's Hall, Basing Lane, Cheapside, three times a week in the morning at a quarter before six. I believe this coach goes on Tuesday, Thursday, and Saturday; it is a Stroud coach and does not come nearer to our house than within four miles on the Cirencester Road. If you prefer this coach, we will send for you to the place where the roads diverge. This is of course in case Mrs. Malthus does not accompany you....
It is true the case[236]in my book is stated to be temporary, and in my opinion it can only be temporary because it cannot exist when the population has increased with the demand for people. When we meet we must agree upon the meaning to be attached to 'a neat surplus from the land'; it may mean the whole material produce after deducting from it what is absolutely necessary tofeed the men who obtained it, or it may mean the value of the produce which falls to the share of the capitalist, or to the share of the capitalist and landlord together. If the first be neat surplus it is equally so whether given to labourers, capitalists, or landlords. If the second it may fall short of giving as great a value to the capitalist as he expended in obtaining it, and therefore for him there would be no neat produce. This term neat produce is used ambiguously in your book, and is made the ground of an observation on something [which I s]aid about neat and gross produce. The observation is [just] or not just, according to the meaning attached to the term neat produce; but more of this when we meet.
Knowing as I do how much we are influenced by taking a particular view of a subject, and how difficult it is to destroy a train of ideas which have long followed each other in the mind, I will not say I am right about the effects of unproductive demand, and therefore it is possible that five years hence I may think as you do on the subject, but at present I do not see the least probability of such a change, for every renewed consideration of the question confirms me in the opinion which I have long held.
Ever truly yours,David Ricardo.
Note.—On the 8th May, 1821, Ricardo writes to J. B. Say from London (Say, Œuvres Diverses, p. 416), acknowledging receipt of Say's 'Letters to Malthus,' and sending him an early copy of the 3rd edition of his 'Pol. Econ. and Tax.' He finds fault again with Say's use of the word Value. He adopts Say's doctrine of 'productive services'; but 'rent being the effect and not the cause of the rise of prices, I submit afresh to you the question whether it is not well to leave rent out of account when we are estimating the comparative value of the productions of the soil. Suppose that I have before me two loaves, the one from the best land in the country, a land yieldingthree or four pounds sterling per acre, the other from a land rented at about three or four shillings. The two are precisely of the same quality and the same price. You would say that the price of the one is largely a payment for the service of the soil, while it gives little profit for the capital and the labour that have made that land produce. This is incontestable; but what consequence can you draw from it for our practical guidance? What we want to know is the general law which regulates the value of bread relatively to the value of all other things; and I believe that we shall find that one of those loaves, the one that comes from the land that pays little or no rent, determines the value of the whole of the bread; consequently its value, compared with that of all other things, depends on the quantity of labour employed in its production, comparatively with the quantity of labour employed in every other production. Your book (the Traité) would have gained much if you had considered the laws of rent and profits more deeply: 'Adam Smith was certainly wrong in supposing that the rate of profits depends on the amount of accumulated capitals without regard to the population, and the means of providing for it.' In other points I agree with your book and with the greater part of your 'Letters to Malthus.' 'Mr. Malthus and I see each other frequently, without convincing one another. I am glad to be able to inform you that economical science is more and more studied by the youth of this country. We have recently formed a club of political economists, in which we are proud to include Messrs. Torrens, Malthus, and Mill. Many others besides are actively maintaining the principles of free trade, though their names are not so well known to the public.'In his reply (Paris, 19th July, 1821) Say points out that Ricardo neglects the distinction between 'natural wealth' and 'social wealth,' or he would agree more than he does with Say in his view of value. 'Value in use,' if it means anything, means utility pure and simple, and we may leave out the 'value.' But utility may be gratuitously presented to us by nature, or added by our labour and outlay. We measure the new utility thus added, not as you say by thequantity of labourit costs us, but by the differentquantities of another productwhich are given for it (for the new utility not for the nature-given utility) by others. For instance, a pound of iron is perhaps 2000 times less valuable than a pound of gold, though the utility of the iron may be equal,if not superior, to that of the gold; and the reason is that nearly all the utility of the iron is a gratuitous gift of nature to us. I neglect, therefore, the distinction of value in use and value in exchange deliberately, for I think Political Economy has to do only with the latter. As to the two loaves, the phenomenon you speak of is due, first, to the appropriation of land, apart from which such produce of the soil as was got without labour would cost nothing to anybody,—second, taking things as they are, to the fact that progress in production essentially consists in the substitution of nature's gratuitous services for our own costly ones—our ideal being the complete displacement of the latter by the former, which would make us all 'richer than David Ricardo.' Again, I consider that the determining causes of value include the causes that influence demand as well as supply, the cost to the demander of the productive services he offers in exchange, and not only the cost in labour of the article supplied. I am glad to hear of your Club. 'What I desire above all is that such economical principles as are not abstract, but are only the frank exposition of facts and their consequences, should be diffused among all classes of citizens. We have need not of controversialists expert in syllogistic weapons, but of practical economists; and all that is wanted, for that, is notions accessible to plain common sense, which I fear we repel by our too abstract reasonings.' If you admit strangers, I should be glad to be a member. He adds in a postscript that his eulogies (in the letters to Malthus) of the Essay on Population have been taken by some English writers as ironical; and he would like Ricardo to tell Malthus this is not so; he considers the position of the Essay impregnable, and has a genuine esteem for the author (Œuvres Diverses, pp. 418-22). Say was of opinion that the time had not yet come for setting up a dogmatic orthodoxy in economical doctrines; and he begins the above letter by saying to Ricardo:—'I see in your book a new proof that the subjects of political economy are prodigiously complicated, for, though you and I are both seeking the truth in good faith, yet after devoting whole years to sounding the depths of its fundamental questions we find several points on which we do not agree. It is well we are agreed on the essential point, the possibility of the progress of man in wealth and happiness, as well as on the means needful to that end. We reach the same conclusions, though sometimes in different ways' (p. 418).
Note.—On the 8th May, 1821, Ricardo writes to J. B. Say from London (Say, Œuvres Diverses, p. 416), acknowledging receipt of Say's 'Letters to Malthus,' and sending him an early copy of the 3rd edition of his 'Pol. Econ. and Tax.' He finds fault again with Say's use of the word Value. He adopts Say's doctrine of 'productive services'; but 'rent being the effect and not the cause of the rise of prices, I submit afresh to you the question whether it is not well to leave rent out of account when we are estimating the comparative value of the productions of the soil. Suppose that I have before me two loaves, the one from the best land in the country, a land yieldingthree or four pounds sterling per acre, the other from a land rented at about three or four shillings. The two are precisely of the same quality and the same price. You would say that the price of the one is largely a payment for the service of the soil, while it gives little profit for the capital and the labour that have made that land produce. This is incontestable; but what consequence can you draw from it for our practical guidance? What we want to know is the general law which regulates the value of bread relatively to the value of all other things; and I believe that we shall find that one of those loaves, the one that comes from the land that pays little or no rent, determines the value of the whole of the bread; consequently its value, compared with that of all other things, depends on the quantity of labour employed in its production, comparatively with the quantity of labour employed in every other production. Your book (the Traité) would have gained much if you had considered the laws of rent and profits more deeply: 'Adam Smith was certainly wrong in supposing that the rate of profits depends on the amount of accumulated capitals without regard to the population, and the means of providing for it.' In other points I agree with your book and with the greater part of your 'Letters to Malthus.' 'Mr. Malthus and I see each other frequently, without convincing one another. I am glad to be able to inform you that economical science is more and more studied by the youth of this country. We have recently formed a club of political economists, in which we are proud to include Messrs. Torrens, Malthus, and Mill. Many others besides are actively maintaining the principles of free trade, though their names are not so well known to the public.'
In his reply (Paris, 19th July, 1821) Say points out that Ricardo neglects the distinction between 'natural wealth' and 'social wealth,' or he would agree more than he does with Say in his view of value. 'Value in use,' if it means anything, means utility pure and simple, and we may leave out the 'value.' But utility may be gratuitously presented to us by nature, or added by our labour and outlay. We measure the new utility thus added, not as you say by thequantity of labourit costs us, but by the differentquantities of another productwhich are given for it (for the new utility not for the nature-given utility) by others. For instance, a pound of iron is perhaps 2000 times less valuable than a pound of gold, though the utility of the iron may be equal,if not superior, to that of the gold; and the reason is that nearly all the utility of the iron is a gratuitous gift of nature to us. I neglect, therefore, the distinction of value in use and value in exchange deliberately, for I think Political Economy has to do only with the latter. As to the two loaves, the phenomenon you speak of is due, first, to the appropriation of land, apart from which such produce of the soil as was got without labour would cost nothing to anybody,—second, taking things as they are, to the fact that progress in production essentially consists in the substitution of nature's gratuitous services for our own costly ones—our ideal being the complete displacement of the latter by the former, which would make us all 'richer than David Ricardo.' Again, I consider that the determining causes of value include the causes that influence demand as well as supply, the cost to the demander of the productive services he offers in exchange, and not only the cost in labour of the article supplied. I am glad to hear of your Club. 'What I desire above all is that such economical principles as are not abstract, but are only the frank exposition of facts and their consequences, should be diffused among all classes of citizens. We have need not of controversialists expert in syllogistic weapons, but of practical economists; and all that is wanted, for that, is notions accessible to plain common sense, which I fear we repel by our too abstract reasonings.' If you admit strangers, I should be glad to be a member. He adds in a postscript that his eulogies (in the letters to Malthus) of the Essay on Population have been taken by some English writers as ironical; and he would like Ricardo to tell Malthus this is not so; he considers the position of the Essay impregnable, and has a genuine esteem for the author (Œuvres Diverses, pp. 418-22). Say was of opinion that the time had not yet come for setting up a dogmatic orthodoxy in economical doctrines; and he begins the above letter by saying to Ricardo:—'I see in your book a new proof that the subjects of political economy are prodigiously complicated, for, though you and I are both seeking the truth in good faith, yet after devoting whole years to sounding the depths of its fundamental questions we find several points on which we do not agree. It is well we are agreed on the essential point, the possibility of the progress of man in wealth and happiness, as well as on the means needful to that end. We reach the same conclusions, though sometimes in different ways' (p. 418).
[Addressed to St. Catherine's, Bath.]
Gatcomb Park,Minchinhampton,9 July, 1821.
My dear Sir,
I am sorry that you will not spare me a few days before you return to London. Pray reconsider your determination, and, if you can alter it, do. On Saturday I expect Mr. Tooke; it is a long time since he fixed on that day to come to me, and I am sure the pleasure of his visit will be much increased, both to him and to me, if you also formed one of our party.
McCulloch has specifically and strongly objected to my chapter on Machinery[238]; he thinks I have ruined my book by admitting it, and have done a serious injury to the science, both by the opinions which I avow, and by the manner I have avowed them[239]. Two or three letters have passed between us on this subject; in his last, he appears to me to acknowledge that the effect of the use of machinery may be to diminish the annual quantity and value of gross produce. In yielding this, he gives up the question, for it is impossible to contend that with a diminished quantity of gross produce there would be the same means of employing labour. The truth of my propositions on this subject appear to me absolutely demonstrable. McCulloch is lamenting over the departure from my plan of currency, and means to make it the subject of an article in the Edinburgh Review, as he has already done in the Scotsman. I very much regret that in the great change we have madefrom an unregulated currency to one regulated by a fixed standard we had not more able men to manage it than the present Bank directors. If their object had been to make the revulsion as oppressive as possible, they could not have pursued measures more calculated to make it so than those which they have actually pursued. Almost the whole of the pressure has arisen from the increased value which their operations have given to the standard itself. They are indeed a very ignorant set.
You are right in supposing that I have understood you in your book not to profess to enquire into the motives for producing, but into the effects which would result from abundant production. You say in your letter—'We see in almost every part of the world vast powers of production which are not put into action, and I explain this phenomenon by saying that from the want of the proper distribution of the actual produce adequate motives are not furnished to continued production.' If this had been what I conceived you to have said, I should not have a word to say against you; but I have rather understood you to say that vast powers of production are put into action and the result is unfavourable to the interests of mankind; and you have suggested as a remedy either that less should be produced or more should be unproductively consumed. If you had said 'After arriving at a certain limit, there will in the actual circumstances be no use to try to produce more; the end cannot be accomplished, and, if it could, instead of more, less would belong to the class which provided the capital,' I should have agreed with you; yet in that case I should say the real cause of this faulty distribution would be to be found in the inadequate quantity of labour in the market, and would be effectually cured by an additional supply of it. But I say with you there could be no adequate motive to push production to this length, and therefore it would never go so far. I do not know whether Iam correct in my observation that 'I say so with you,' for you often appear to me to contend not only that production can go on so far without an adequate motive, but that it actually has done so lately, and that we are now suffering the consequences of it in stagnation of trade, in a want of employment for our labourers, etc., etc.; and the remedy you propose is an increase of consumption. It is against this latter doctrine that I protest, and give my decided opposition. I acknowledge there may not be adequate motives for production, and therefore things will not be produced; but I cannot allow first that with these inadequate motives commodities will be produced, and secondly that, if their production is attended with loss to the producer, it is for any other reason than because too great a proportion is given to the labourers employed. Increase their number and the evil is remedied. Let the employer consume more himself and there will be no diminution of demand for labour; but the pay of the labourer, which was before extravagantly high, will be reduced. You say in your letter, 'If an increased power of production be not accompanied by an increase of unproductive expenditure, it will inevitably lower profits and throw labourers out of employment.' In this proposition I do not wholly agree. First I say it must be accompanied with an increase either of productive or of unproductive expenditure. If the labourer receives a large proportion of the produce as wages, all that he receives more than is sufficient to prompt him to the necessary exertions of his powers, is as much unproductive consumption as if it were consumed by his master, or by the State; there is no difference whatever. A master manufacturer might be so extravagant in his expenditure, or might pay so much in taxes, that his capital might be deteriorated for many years together; his situation would be the same if, from his own will or from the inadequacy of the population, he paid so much to his labourers as toleave himself without adequate profits or without any profits whatever. From taxation he might not be able to escape, but from this last most unnecessaryunproductiveexpenditure he could and would escape, for he could have the same quantity of labour with less pay, if he only saved less; his saving would be without an end, and would therefore be absurd. You perceive then I fully admit more than you ask for; I say that, under these circumstances, without an increase of unproductive expenditure on the part of the masters profits will fall; but I say this further that even with an increased unproductive consumption and expenditure by the labouring classes profits will fall. Diminish this latter unproductive expenditure and profits will again rise; this may be done two ways, either by an increase of hands which will lower wages, and therefore the unproductive expenditure of the labouring class, or by an increase of the unproductive expenditure of the employing class, which will also lower wages by reducing the demand for labour.
I fear I have been guilty of needless repetition, but I have really a great wish to show you what the points are on which our difference really exists. I am glad to hear that you are in a pleasant country....
Ever yours,David Ricardo.
[To St. Catherine's, Bath.]
Gatcomb Park,21 July, 1821.
My dear Malthus,
I think that the concession which I have made will not bear the construction you have put upon it. 'An increased power of production must be accompanied with an increaseof productive or unproductive expenditure.' This is the sentence on which you have remarked, and you say could not be true if the gross produce were diminished. Certainly not, but I have never said that with an increased power of production the gross produce would be diminished; I have never said that machinery enables you to get a greater quantity of gross produce; my sole complaint against it is that it sometimes actually diminishes the gross produce.
With respect to the particular subject of discussion between us, you seem to be surprised that I should understand you to say in your book 'that vast powers of production are put into action, and the result is unfavourable to the interests of mankind.' Have you not said so? Is it not your objection to machinery that it often produces a quantity of commodities for which there is no demand, and that it is the glut which is the consequence of quantity which is unfavourable to the interests of mankind? Even as you state your proposition in your present letter, I have a right to conclude that you see great evils in great powers of production from the quantity of commodities which will be the result, and the low price to which they will fall. Saving, you would say, would first lead to great production, then to low prices, which would necessarily be followed by low profits. With very low profits the motives for saving would cease, and therefore the motives for increased production would also cease. Do you not then say that increased production is often attended with evil consequences to mankind because it destroys the motives to industry, and to the keeping up of the increased production? Now in much of this I cannot agree with you. I indeed allow that the case is possible, to conceive of saving being so universal that no profit will arise from the employment of capital; but then I contend that the specific reason is because all that fund, which should, and in ordinary cases does, constitute profit, goes to wages and immoderately swells that fund which isdestined to the support of labour. The labourers are immoderately paid for their labour, and they necessarily become the unproductive consumers of the country. I agree too that the capitalists being in such a case without a sufficient motive for saving from revenue to add to capital, will cease doing so, will, if you please, even expend a part of their capital; but I ask what evil will result from this? None to the capitalist, you will allow, for his enjoyments and his profits will be thereby increased, or he would continue to save; none to the labourers, for which we should repine, because their situation was so exceedingly favourable that they could bear a deduction from their wages and yet be in a most prosperous condition. Here it is where we most differ. You think that the capitalist could not cease saving on account of the lowness of his profits, without a cessation in some degree of employment to the people. I, on the contrary, think that with all the abatements from the fund destined to the payment of labour, which I acknowledge would be the consequence of the new course of the capitalists, enough would remain to employ all the labour that could be obtained and to pay it liberally, so that in fact there would be little diminution in the quantity of commodities produced; the distribution only would be different; more would go to the capitalists and less to the labourers.
I do not think that stagnation is a proper term to apply to a state of things, in which for a time there is no motive to a further increase of production. When in the course of things profits shall be so low from a great accumulation of capital and a want of means of providing food for an increasing population, all motive for further savings will cease; but there will be no stagnation; all that is produced will be at its fair relative price, and will be freely exchanged. Surely the word stagnation is improperly applied to such a state of things, for there will not be ageneral glut, nor will any particular commodity be necessarily produced in greater abundance than the demand shall warrant.
You say, 'We know from repeated experience that the money price of labour never falls till many workmen have been for some time out of work.' I know no such thing; and, if wages were previously high, I can see no reason whatever why they should not fall before many labourers are thrown out of work. All general reasoning, I apprehend, is in favour of my view of this question, for why should some agree to go without any wages while others were most liberally rewarded? Once more I must say that a sudden and diminished demand for labour in this case must mean a diminished reward to the labourer, and not a diminished employment of him; he will work at least as much as before, but will have a less proportion of the produce of his work, and this will be so in order that his employer may have an adequate motive for employing him at all, which he certainly would not have if his share of the produce were reduced so low as to make increased production an evil rather than a benefit to him. 'It is' (never) 'said that an increase of unproductive consumption among landlords and capitalists may not sometimes be the proper remedy for a state of things in which the motives for production fail.' I know of no one who has recommended a perseverance in parsimony even after the profits of capital have vanished. I have never done so, and I should be amongst the first to reprobate the folly of the capitalist in not indulging himself in unproductive consumption. I have indeed said that nothing can be produced for which there will not be a demand, unless from miscalculation, while the employment of stock affords even moderate profits; but I have not said that production may not in theory be pushed so far as to destroy the motive on the part of the capitalist to continue producing to the sameextent. I believe it might possibly be pushed so far, but we have never witnessed it in our days, and I feel quite confident that, however injurious such a state of things may be to the capitalist, it is so only because it is attended with disproportionate and unusual benefits to the labourers. The remedy, therefore, and the sole remedy, is a more just distribution of the produce; and this can be brought about only, as I said in my last letter, by an increase of workmen or by a more liberal unproductive expenditure on the part of the capitalists. I should not make a protest against an increase of consumption as a remedy to the stagnation of trade, if I thought as you do, that we were now suffering from too great savings; as I have already said, I do not see how stagnation of trade can arise from such a cause.
We appear then not to differverywidely in our general principles, but more so respecting the applications of them. Such and such evils may exist; but the question is do they exist now? I think not; none of the symptoms indicate that they do, and in my opinion increased savings would alleviate rather than aggravate the sufferings of which we have lately had to complain. Stagnation is a derangement of the system, and not too much general production, arising from too great an accumulation of capital.
Mr. Tooke has been here since Saturday last. I am going with him to-morrow to Bromesberrow[241], from whence he will go to Ross and down the Wye to Chepstow. We have had plenty of talk on subjects of political economy, and have found out points on which there is partial difference of opinion between us. He brought with him two pamphlets, in which you are often mentioned as well as myself; perhaps you have seen them: their titles are An Inquiry into those principles advocated by Mr. Malthus relative to the Nature of Demand and the necessity ofConsumption[242], the other Observations on certain Verbal Disputes in political economy[243]. Mrs. Ricardo unites with me in kind regards to Mrs. Malthus and yourself. Mr. Tooke also desires to be kindly remembered.
Ever truly yours,David Ricardo.
Gatcomb Park,18 Sept., 1821.
My dear Malthus,
Without imputing the least blame to you, I fear that I do not quite understand your 'knotty point.' You appear to me to compare things together, which cannot, under any supposable circumstances, be made the subject of comparison. You compare a commodity, in the production of which the advances in labour remain the same while the profits of stock diminish, to another commodity 'obtained by a given quantity of labour, a given quantity of capital, and a given rate of profits.' Is not this supposing two rates of profit at the same time? Perhaps this was not meant, and your question was asked on the supposition of profits varying equally in all trades. If so, I have no hesitation in answering that, if, from an increased quantity of labour on the land, corn should appear to have doubled in money price, and not from any increased facility in the production of money, we ought to say, as we always do say, that corn had risen a hundred per cent., and not that money had fallen fifty. In differing on this point we in reality come to our old dispute, whether the quantity of labour in a commodity should be the regulator of its value, or whether the value of all things should, underall circumstances, be estimated by the quantity of corn for which they would exchange. You say 'we cannot surely assume that the cost of producing the necessaries of the labourer is low absolutely when the land is productive, if what is gained by the small quantity of labour employed is counterbalanced by the very high rate of profits.' I, of course, should say the cost of these necessaries was low if they were produced with little labour, but would not you, who adopt another measure andsometimesthink value is to be estimated by the quantity of things generally which the commodity could command, would you not say, that the cost of these necessaries was small in value, agreeing, as you would, that they would not command an abundance of other things? I do not know what you mean by the low cost of necessaries being counterbalanced by the very high rate of profits. If a hundred quarters of corn be to be divided between my labourers and me, its cost being made up of wages and profits, its cost will be the same, whether profits be high or low, and this division will in no degree affect the price of the corn; but, if at a subsequent time eighty quarters only can be obtained with the same labour and capital, and in consequence a greater proportion of the eighty be given to the labourers than was before given of the hundred, corn will rise absolutely both in my measure and in yours. It is I who am willing to take some one or more of the external commodities[245]in the production of which, while the advances in labour increase in money value, the profits of stock diminish, as a steady measure, but which you so often reject, and insist that, whether the produce of a given quantity of labour be a hundred or eighty quarters, in either case, corn has remained a steady measure of value. In the case you have supposed, you say that the commodity, in which the same advances for labour were made, while profits diminished, 'would not only fallone half relatively to corn, but it would appear to do so estimated in any common external commodity which had all along been produced by the same quantity of labour,and at the same rate of profits.' I wish you had named this commodity. In the first place I deny that it would be produced at the same rate of profits, for there cannot be two rates of profit at the same time in the same country, and secondly I contend that this commodity would also fall to one half relatively to corn, and therefore would appear invariable when compared with the other commodities.
Perhaps by external commodity, you mean a foreign commodity to be imported from abroad. If so, why should not that commodity vary in reference to corn in the same degree as any home made commodity? If a hogshead of claret were worth a certain quantity of cloth, of hats, of hardware, etc., etc., would its relative value to these things alter because it was more difficult to raise corn in England, and its price rose because we refused to import it from other countries? To me it appears most clear that claret would not vary as compared with the things which I before enumerated, and that it would vary as compared with corn. Pray think of this and tell me whether I am not right. In the postscript to your letter you ask 'In the two extreme cases of the highest profits, and the lowest profits on the land, may not corn and labour remain of the same value estimated in some external commodity, although in the interval considerable variations may have taken place from supply and demand?' I answer, no, it could not remain of the same value estimated in home commodities, and as it is by means of these home commodities that we should purchase the external commodities, I cannot see the slightest reason for supposing that these commodities so exchanged could alter in relative value. I hope I have made myself understood. I am glad you approach a little towards my views, I wish you had told me to what extent.Torrens told me he should send me his book[246]; he has not done so, and I have not seen it.
Ever yours,David Ricardo.
[28 Sept., 1821.]
My dear Malthus,
The case you put to me appears to me to be an impossible one. How can all countries produce their commodities with the same quantity of labour, all, except one, produce theircornwith the same quantity of labour also, and yet all, the one not excepted, have their profits on capital at the same rate? The one which you suppose to raise its corn with only half the quantity of labour required in the others would in all probability obtain its labour at a much cheaper price, and consequently profits would be higher in that country. If indeed a free trade should be established between all these countries, then their profits might be all nearly at the same rate, because the price of corn and necessaries estimated in quantity of labour would be nearly the same in all. In carrying on this supposed case we must be informed whether the country in which corn is obtained with comparatively little labour can continue to obtain it on the same terms, after she is called upon to supply the markets of other countries; if she can, then the comparative prices of corn and commodities will be altered in all countries; in the country producing the cheap corn, money will be rather at a higher level than before, and therefore corn rather dearer; but commodities generally will be at no higher price;—they will be indeed rather cheaper, because they will be imported from abroad andfrom countries where the level of currency will be somewhat reduced; and therefore the cost price of commodities in those countries will be lower, and consequently they can be sold cheaper to the country importing them. Bulky commodities and the price of labour will only be raised in this particular country, because the level of currency will be somewhat raised; labour will in the real measure of value be rather lowered, that is to say, the portion of produce paid to the labourer, manufactured and raw produce, together, will probably be rather increased, but in consequence of free trade and a better distribution of capital, the proportion of the whole produce of a given capital which the labourer will receive, will be diminished; his proportion will really be obtained with less labour.
The benefit to other countries cannot be doubted; corn and labour will fall very greatly in those countries, and consequently profits will rise, and, as part of their exports in return for corn must in the first instance be money, the general level of currency will be reduced and commodities generally will fall, not because they can be produced cheaper but because they are measured by a more valuable money. This is on the supposition that corn can continue to be produced with little labour in the excepted country; but suppose the increased demand for corn should oblige this country to cultivate poorer land, then the price of corn would rise from another cause besides the higher level of currency; and, if this difficulty should be nearly as great as in other countries, corn would be nearly as high; but, while it could afford on any terms to export corn for commodities, there would be previously to the importation of commodities an influx of the precious metals and a higher level of currency. Without such higher level of currency commodities could never be imported from countries where they were before at the same price, andwhere they required the same quantity of labour to produce them. Your case is an impossible one, first because you suppose the profits in two countries to be the same although the cost of producing necessaries in one of them be only one half of what it is in the other, secondly you assume as a matter of course that with a free trade the price of corn in the exporting country would rise to the price of corn in the importing country whereas it would fall in the importing country to the price in the exporting country if its cost of production was not increased in that country, and if it rose it would rise only in proportion to the increased cost of production. When there is a free trade between countries it is impossible that profits can differ very much, the only cause of difference in such case will be the different modes of living of the labourers; in one country they may be contented with potatoes and a mud hovel; in another they may require a decent house and wheaten bread. You say: 'Proceeding from this point it is obvious that in the course of a hundred years (if accumulation were supposed) labour and corn might continue at nearly the same price, while domestic commodities from the fall of profits to the level of other countries would fall to half their price estimated in the money of the commercial world.' Domestic commodities are to fall, because profits fall. If profits fall,Ido not see why domestic commodities should fall; but why should profits fall if corn and labour continued at nearly the same price? I know of no cause of the fall of profits but the fall[248]of labour. You say: 'A striking approximation to this case actually exists in America.' 'The only difference,' you continue, 'is that circumstances in America have made labour high'; but this is the only important feature in the case. I am however decidedly of opinion that, if in America labour was very low and profits consequentlymuch higher than they are, there would be very little fall in the domestic commodities of America.
I agree indeed with you that in the progress of the cultivation of America her corn must rise with the increased difficulty of producing it; this circumstance must have a tendency to reduce the relative quantity, or rather lower the level of American currency, which will not fail by increasing the value of money to lower the value of those commodities in America which are too bulky to be exported[249]. The commodities which America exports will not be similarly affected. Nothing is to me so little important as the fall and rise of commodities in money; the great enquiries on which to fix our attention are the rise or fall of corn, labour, and commodities, in real value, that is to say the increase or diminution of the quantity of labour necessary to raise corn and to manufacture commodities. It may be curious to develop the effect of an alteration of real value on money price; but mankind are only really interested in making labour productive, in the enjoyment of abundance, and in a good distribution of the produce obtained by capital and industry. I cannot help thinking that in your speculations you suppose these much too closely connected with money price.
I have read a very good critique on Godwin in the Edinburgh Review[250]; and I am quite sure that I know the writer. It is very well done and most satisfactorily exposes Godwin's ignorance as well as his disingenuousness.
Ever yours,David Ricardo.
[Postscript.] I cannot agree with you that in the progress of the cultivation of America a mean between her corn andlabour will remain nearly at the same price as it now is, estimated in money or in hogsheads of claret; it will in my opinion rise. Let me take your own supposition. A country produces her corn with half the labour of another country; consequently she employs only half the capital in producing a given quantity[251]. In this country corn will be at only half the price at which it is in another; 100 quarters will sell for £200, while in another it sells for £400. Suppose profits in both countries to be 20 per cent.; in one a capital of £166 will be employed in the raising of 100 quarters of corn, in the other £333 will be so employed, and 20 per cent. on each of these capitals will be on one £33, and on the other £66. To get £33 the one must have 16½ quarters for his share of the 100 quarters, the other must have precisely the same quantity, and consequently 83½ quarters are paid in both cases for wages and other charges. But the farmer in the fertile country employs only half the labour that the other employs, and consequently with the same money wages each labourer will have the command of double the quantity of corn, he will have what you call double real wages.
Now suppose that in the progress of the fertile country it [will] at last arrive at the state in which it is necessary to [emplo]y £333 instead of £166 to raise 100 quarters of corn; it is indeed possible, under the extravagant supposition with which we have commenced, that labour might continue at the same money price; but it is quite impossible that corn should not be doubled in money price, for twice the quantity of labourers at these uniform money wages would be required to produce it. If corn doubles in price and wages remain stationary, the mean between the two must necessarily rise, and consequently, estimated in claret or in money, a mean between her corn and labourcannot as you say remain nearly the same. If (as I had a right to suppose) labour in such a country was at a low money price, when corn could be produced with so much facility, the conclusion, when corn rose, would be much more in my favour.
I cannot allow that hats would fall in a progressive country because of a fall of profits. How can it be said that the cost of producing hats is reduced by a fall of profits, if a fall of profits must be accompanied by a rise of wages? Show me that a fall of profits may take place without a rise of wages in any fixed measure of value, and then I will yield this point. Butyouhave no right to talk of a fall of profits; your case is that of a progressive country with low profits and enormous wages. If of every 100 quarters of corn, where it can be produced with little labour, eighty-three be given to the labourers, while no more is given in countries where double the quantity of labourers are employed to produce 100 quarters of corn,youare bound to say that wages are enormously high. In my measure of value they would not be enormously high: but the commodity on which wages were expended would be extravagantly low; at any rate we should both agree that profits in such a state of things would be very moderate.
It is hardly fair to tax you with so long a letter and so soon too!
Gatcomb Park,11 Oct., 1821.
My dear Malthus,
It is certainly probable that the fault is with me in not understanding the proposition you submit to me; and it may arise as you say from my being too much prepossessed in favour of my own views; but I do not plead guilty to the charge of not giving the requisite degree ofattention to the propositions themselves. You now say 'where have I made the supposition you impute to me? Surely not in my last letter. My first supposition was that profits would be 100 per cent. in the country where corn was obtained with double the facility, while it was 10 per cent. in all others.' If you had done so, then indeed I should be justly chargeable with inattention; but these were your words in the letter which I was answering, 'I will try an illustration. Suppose that corn, money and commodities were obtained in the great mass of nations, connected with each other by commerce, at a rate of 10 per cent., but that in one country half the quantity of labour only was necessary to produce corn, while other commodities were produced with as much labour as in the rest of the world;' not one word is said of profits being at a different rate in this country; and, as you had said that in the great mass of nations profits were at 10 per cent., I concluded that in this country also profits were supposed to be at 10 per cent. In this instance then you must acknowledge the fault was yours and not mine. You do indeed afterwards suppose that this single country exports its corn and obtains the high price of other countries for it, and by such means raises its profits to 100 per cent.; but this evidently would depend on the fact whether she would get the price of other countries or whether domestic competition would lower the price of corn, in the countries to which it was exported, to the growing price of the exporting country. This I now understand to be your case. If the country which raised its corn, with such great facility, were completely insulated from all other countries, you would probably allow that corn, in that country, would be cheap in proportion to the facility of producing it. You would allow this also if all other countries were determined to protect their own agriculture and absolutely refused to import foreign corn. But in the case of a free trade, thenyou think the price would rise in the exporting country to the level of the price of other countries, and consequently profits would be enormously high. If I could admit the fact of a high price, which I cannot do, I should adopt your conclusion. I should say that general profits would be higher than they had been before the rise in the price of corn. Rents would undoubtedly be higher, for the landlord would have at least the same portion of corn as before, and that portion would be greatly enhanced in value. Labour would be higher, because the labourer would require higher money wages when corn was doubled in price. And profits would be higher because the capitalist would have more corn than before at the same time that it bore a higher price. All these classes would be benefited by the high relative value of corn to manufactured commodities, and the capitalist more particularly so, because amongst those manufactured commodities are to be found some of the necessaries of the labourer, and therefore by the payment of a less portion of corn to the labourer he would still have the command of a increased quantity of food and necessaries for himself and his family. The question then between us is—would the price of corn rise permanently or would it not, in the country which continued to possess the great facility of producing it?
There is only one case in which I think such a rise possible, and that is on the supposition that the whole capital of the country was employed in producing corn, and yet could not produce it in sufficient quantity to satisfy the demand of other countries. In that case corn would be at a monopoly price, in the same manner as those rare wines which can only be produced in particular districts are at a monopoly price, because competition could not have its full effect. In the article of corn it would be limited by the scarcity of capital, which gave to the growers of corn large profits, in the same way as the East India Company or anyother Company might make large profits. In the article of wine the price would be augmented by the scarcity of the land on which the grapes were grown, and would chiefly go to the landlord in [the] form of rent. But, supposing no monopoly, supposing capital to be so abundant that all the corn demanded could be supplied, then I hold it to be demonstrable that the price would sink to the growing price of it in the exporting country.
There is however another point on which we differ; you say a striking approximation to this actually exists in the case of America; the only difference is that the demand for labour has awarded a larger quantity of corn to the labourer, the effect of which has been to keep the rate of profit comparatively low. But you surely do not mean that the exchangeable value of the commodities exported by America are (sic) in the least degree affected by the quantity of corn awarded to the labourer. I do not think you are justified in your expectation that in consequence of the accumulation of capital in America any commodity should fall there until it ceased to possess the character of a monopolized commodity. Corn and the bulky commodities of America (which latter are always regulated by the price of corn) could not fall until corn was sold at a price depending on the quantity of labour actually expended on its production, and not on the demand of our countries. When that time came, it would cease to be a monopolized commodity, and would fall as well as profits to the fair competition rates. I deny that America comes at all within your supposed case; and the proof is that, if you were to isolate America from all other countries, you would not lower her rate of profits, otherwise than by preventing her from receiving a supply of labour from other countries; but do the same thing to a country circumstanced as you have supposed, and profits would immediately fall from 100 to perhaps 20 per cent. Your case in fact is that of acountry possessed of a particular commodity in very general demand, and on which competition operates most feebly. We have often discussed this peculiar case, and have always agreed in our opinions on it. I confess, however, I am astonished to hear you say that this is the case of America; you might with as much reason contend that it was also the case of Russia, of Poland, of the Cape of Good Hope, of Botany Bay. If indeed America could send her produce from the interior to Europe without expense, and if the ports of all countries were open freely to receive the corn with which America could, under the circumstances I have supposed, supply [them], then I should say the cases were similar; but, with the enormous expenses of sending corn from the interior of the country, America can really produce a very inconsiderable supply to Europe at an expense much less than Europe can grow it. You ask what can entitle me to suppose that corn will be at half the price in America that it is in other countries, and then argue on that supposition so contrary to the fact. I answer I did not apply my argument to America but to your case, which supposed a country to produce corn with half the labour which was required to produce it in other countries. If America can do this, then I apply it to America. You complain that I do not reason fairly with you, that my theory requires labour to be low in America; but you dispute my theory and refer to the actual state of things in America, where labour is high, and yet I contend that I have a right to suppose labour low. I was dealing with your case and not with America. With respect to America I am not in possession of the facts of her case, and I cannot admit that my theory requires the price of labour to be low in that country. It requires rent to be low, for without that there cannot be a great surplus produce to divide between the two other classes, after satisfying the landlord. You will always make me say that profits depend on thelow price of corn. I never do say so; I contend that they depend on wages, and, although in my opinion wages will be mainly regulated by the facility of obtaining necessaries, they do not entirely depend on such facility. You wish to confine me to that theory, but I reject it; it is none of mine, and I have often told you so. I think Idoshow that your fact does not invalidate my theory, which you say I am bound to do, and I do not assume a different fact than the one you refer to in order to refute you. Surely it is fair to say 'for such and such reasons your conclusion is not correct, but my argument would have been still stronger against you, if, as I have a right to suppose, labour in such a country were cheap, because the necessaries of the labourer are there obtained with facility.' In a country situated as you suppose America to be I do not see what is to make her corn rise; it is already according to your arguments at a monopoly price and cannot rise above that price unless there should be a greater demand and a higher price in Europe, which you say regulates the price in America, or unless America should become so populous that the price of her corn should be regulated by the expense of growing it, as in other countries, and that expense should exceed the present expense in Europe. If your theory be correct, this may not happen in 150 years, notwithstanding the greatest accumulation of capital; but will not labour fall during all that time? If it does fall, then the mean between corn and labour will fall. But suppose the other case. Suppose thecostprice of corn in America should rise above the present cost price in Europe; is it conceivable that labour should fall under such circumstances? To me it appears impossible unless we suppose money to alter in value. In this case then also the mean between corn and labour would vary in value. If hats were produced under the same circumstances as money they would not fall in price in consequence of a fall of profits. If hats were produced by the employment of capital, and money were produced, as you suppose, without any capital, then I allow and have said so in my book[253], hats would fall in price with a fall of profits. But I say again that too much importance is attached to money; facility of production is the great and interesting point. How does that operate on the interests of mankind? You ask what is to become of the money before produced in a country which should grow its own corn with 10 per cent. profit, if it had its facility of producing corn doubled, and profit, were to rise to 100 per cent.; you ask further whether she would not continue to produce money as well as other commodities as the profits of producing it would be also 100 per cent. If the facility of producing corn were doubled, a great deal of labour would be employed on other things, and therefore the corn and commodities of the country would altogether be of as great a money value as before, and would require the same quantity of money to circulate them. With respect to the production of more money that would depend on the demand for it and the prices of other things. I think the production of money would continue as before, but it is quite possible that there might be less encouragement to produce money than other things, and therefore capital might afford 100 per cent. profit in all employments except that one. I wonder you should refuse to assent to this obvious conclusion. You say it is your opinion that, if labour were to fall in consequence of improvements in agriculture before an increase of population had taken place, it could only be from glut and want of demand. Is this opinion consistent with another, which I think you hold, and in which I agree, that one of the regulators of the price of labour is the price of the necessaries of the labourer?
I have mentioned my suspicions respecting the writer of the article on population in theEdinburgh Reviewto severalpersons. I will not utter them from this time. I hear nothing about Murray and Place. I hope your visit at Holland House was an agreeable one. Mrs. Ricardo unites with me in kind regards to Mrs. Malthus; we are all well and are leading gay lives, one week at Worcester Music meeting and Bromesberrow, another at Bath, etc.
Ever truly yours,David Ricardo.