Note.—Thomas Tooke, in his 'History of Prices and of the State of the Circulation from 1839 to 1847' (publ. 1848)[53], refers to this dispute between Ricardo and Malthus, on the relation of the currency to the balance of trade, and quotes long extracts from the article of Malthus in the Edinburgh Review, where (as in this correspondence[54]) Malthus maintains that the precious metals are continually used in payments made by one country to another even if, till that moment, the currencies of both have been at their usual level. The view of Ricardo is that nothing but the state of the currency can influence the foreign exchanges. As late as 1840 statesmen clung to the idea that the Directors of the Bank of England could only operate on the exchanges by increasing or diminishing the circulation[55]. Tooke (followed later by Newmarch, hardly a less authority) sides with Malthus, and thinks thatRicardo's reply to him, in the Appendix to the Tract on Bullion, is 'little more than a repetition in varied forms of expression, according to the phraseology peculiar to the theory in question, of the axiom that gold will not be exported unless it is cheaper than another commodity, assuming consequently the fact to have been that all commodities were at that time dearer in this country than they were abroad, and relatively to gold;'—whereas it appears[56]that between 1809 and 1811 the bulk of commodities were at a far higher price (measured in gold) on the Continent than in England; the 'continental system' had forced vast stores of goods to lie unsaleable in England for want of physical ability, on the part of the merchants of them, to land them on the Continent, though they did their best to smuggle them by way of Heligoland or Turkey into Germany and the door of Portugal was ajar. Coffee was unsaleable in England at 6d.the pound, and at the same time it was fetching 4s.or 5s.on the Continent. Napoleon used to look at the English price current, and, if he found gold dear and coffee cheap in England, he was satisfied that his Berlin and Milan decrees were well carried out, while the English saw only another proof that the Bank was extending its issues overmuch. Tooke and Malthus agreed that the difference between the market price and the mint price of gold bullion was the full measure of the depreciation of the currency; but the 'ultra-bullionists' would not stop there. Tooke, like Ricardo on another occasion (see Letter XLII), had to 'write a book to convince' them, namely his 'Thoughts and Details on the High and Low Prices of the last Thirty years,' (1823).
Note.—Thomas Tooke, in his 'History of Prices and of the State of the Circulation from 1839 to 1847' (publ. 1848)[53], refers to this dispute between Ricardo and Malthus, on the relation of the currency to the balance of trade, and quotes long extracts from the article of Malthus in the Edinburgh Review, where (as in this correspondence[54]) Malthus maintains that the precious metals are continually used in payments made by one country to another even if, till that moment, the currencies of both have been at their usual level. The view of Ricardo is that nothing but the state of the currency can influence the foreign exchanges. As late as 1840 statesmen clung to the idea that the Directors of the Bank of England could only operate on the exchanges by increasing or diminishing the circulation[55]. Tooke (followed later by Newmarch, hardly a less authority) sides with Malthus, and thinks thatRicardo's reply to him, in the Appendix to the Tract on Bullion, is 'little more than a repetition in varied forms of expression, according to the phraseology peculiar to the theory in question, of the axiom that gold will not be exported unless it is cheaper than another commodity, assuming consequently the fact to have been that all commodities were at that time dearer in this country than they were abroad, and relatively to gold;'—whereas it appears[56]that between 1809 and 1811 the bulk of commodities were at a far higher price (measured in gold) on the Continent than in England; the 'continental system' had forced vast stores of goods to lie unsaleable in England for want of physical ability, on the part of the merchants of them, to land them on the Continent, though they did their best to smuggle them by way of Heligoland or Turkey into Germany and the door of Portugal was ajar. Coffee was unsaleable in England at 6d.the pound, and at the same time it was fetching 4s.or 5s.on the Continent. Napoleon used to look at the English price current, and, if he found gold dear and coffee cheap in England, he was satisfied that his Berlin and Milan decrees were well carried out, while the English saw only another proof that the Bank was extending its issues overmuch. Tooke and Malthus agreed that the difference between the market price and the mint price of gold bullion was the full measure of the depreciation of the currency; but the 'ultra-bullionists' would not stop there. Tooke, like Ricardo on another occasion (see Letter XLII), had to 'write a book to convince' them, namely his 'Thoughts and Details on the High and Low Prices of the last Thirty years,' (1823).
London,30th Dec., 1813.
My dear Sir,
I have been amusing myself for one or two evenings in calculating the exchanges, price of gold, etc., at Amsterdam, and I enclose the result of my labour. I have every reason to believe that my calculations are correct,—thoughI am somewhat puzzled at the profit which there appears to be on the importation of gold from Amsterdam, if the prices there be quoted correct [sic]. If the difference were the other way, we might ascribe it to the money of Holland not being so good as it ought to be by the mint regulations; but in the present instance for guilders, as good as they are coined, gold can be bought 9½ per cent. cheaper than in London. I am told that gold which cannot be exported has sunk considerably in price although gold that may be exported keeps its price. I fully expect that foreign gold will be lower.
We have had a continuance of foggy weather ever since Monday. We are obliged to burn candles during the day, and at night it is with the greatest difficulty we can find our way to our homes. I hope you are more fortunate and breathe a clearer atmosphere. We shall expect you in Brook Street on your next visit to London. Have the goodness to write the day before you come. With best wishes to Mrs. Malthus,
I am, dear Sir,Yours very truly,David Ricardo.
Columns 11 and 12 will show on inspection whether silver be passing from London to Amsterdam or from Amsterdam to London. Suppose the price of silver in London to be 6s.7d.and the exchange with Amsterdam 28s.Against 6s.7d.in column 11 the par of exchange is 29·41 in column 12; consequently being at 28 it is unfavourable to Amsterdam, and silver can be exported from Amsterdam to London with a profit of 5 per cent.If under the same circumstances the exchange had been 31, silver could have been exported to Amsterdam with a profit of 5 per cent.
Columns 8, 9 and 10 will show from which country gold may be profitably exported. Suppose the price of gold in Amsterdam to be 16 per cent. premium, the agio 3 per cent., the exchange with London 31, and the price of gold in London £5 10s., from which country would gold be exported and with what profit?
Against 16 per cent. in column 1 the par of exchange in column 8 is 39·64, and against £5 10s.the price of gold in London in column 9 the multiplier ·708 stands in column 10. 39·64 multiplied by ·708 gives 28·06 as the par for bank notes; therefore, when the exchange is at 31, it is unfavourable to Holland, and gold may be exported from thence with a profit of 10½ per cent. nearly. Or thus: an oz. of standard gold, when the marc could be bought at 16 per cent. premium at Amsterdam, would cost 154·3 Flemish shillings banco, when the agio was 3 per cent., which reduced into English money at 31 [Flemish] shillings per £ sterling will give £4 19s.6¾d.But it will sell in London for £5 10s.which is a profit of 10½ per cent. nearly.
123[57]456[58]789101112Price of gold at Amsterdam. Premium onf.355 per marc.Value of a marc in current guilders.Corresponding price of an oz. of standard gold in London.Corresponding price of an oz. of standard silver in London.Value of an oz. of standard gold in Flemish current shillings.Value of an oz. of standard gold in Flemish Banco shillings. Agio 3 p.c.Real par of exchange in Flemish current shillings per £ sterling in gold.Real par of exchange in Flemish Banco shillings per £ sterling in gold. Agio 3 p.c.When the price of gold in London in bank notes isThe bullion par must be multiplied byPrice of standard silver in London in bank notes per oz.Par of exchange with Amsterdam in Banco. Agio 3 p.c.£sd£s.d.s.d.Parf.355f35568·00 pence13713335·2034·171 p.c. prem.358·5567·32138·4134·335·5534·514 0 0·9735 237·482 "362·1066·67139·8135·735·9034·854 1 0·9615 336·883 "365·6566·02141·3137·236·2535·194 2 0·9495 436·604 "369·2065·38142·5138·636·6135·544 3 0·9385 535·755 "372·7564·76143·9139·836·9535·874 4 0·9275 635·216 "376·3064·15145·3141·137·3136·224 5 0·9165 734·687 "379·8563·55146·6142·537·6636·564 6 0·9055 834·178 "383·4062·96148143·938·0136·904 7 0·8955 933·679 "386·9562·39149·3145·338·3637·244 8 0·8855 1033·19389·373 17 10½62150·3146·038·6137·4810 "390·503 18 1150·7146·338·7137·584 9 0·8755 1132·7211 "394·053 18 10152·1147·639·0637·924 10 0·8656 032·2712 "397·603 19 6½153·5149·039·6233·274 11 0·8566 131·8413 "401·154 0 3154·8150·339·7738·624 13 0·8386 231·4214 "404·704 0 11½156·2151·740·1238·964 15 0·8206 330·9815 "408·254 1 8157·5152·940·4839·304 17 0·8036 430·5816 "411·804 2 4½158·9154·340·8339·644 19 0·7866 530·1717 "415·354 3 0½160·3155·641·1839·985 0 0·7796 629·7918 "418·904 3 9161·7157·041·5440·325 2 0·7646 729·4119 "422·454 4 5½163·1158·341·8940·675 4 0·7496 829·0420 "4264 5 2164·5159·642·2441·025 6 0·7356 928·6921 "429·554 5 10½165·8161·042·5941·365 8 0·7216 1028·335 10 0·7086 1127·997 027·667 127·327 227·027 326·717 426·407 526·117 625·82
London,1 Jan., 1814.
My dear Sir,
Having finished a table for the Hamburgh exchanges, similar to that which I have already sent you for Holland, I thought you might like to have a copy of it[59]. In this as well as in the other the result is not quite satisfactory; for example, at the present time I believe the exchange with Hamburgh is quoted 28s.and the price of dollars 6s.11½d.By the table it appears that with [such] a price of dollars the exchange at par would be 25s.; consequently it is now unfavourable to Hamburgh 12 per cent., which appears to me to be excessively high. In fact, under the present circumstances, there can be no intercourse with Hamburgh, and the quotation must be only nominal. Mrs. Ricardo and I leave London to-morrow early for Bradford; from thence we intend going to Gatcomb[60], and expect to be in town again on Thursday. I hope we shall soon see you. With best wishes to Mrs. Malthus,
I am, dear Sir,Yours very truly,David Ricardo.
Price of a ducat or 53 grains of fine gold in marks banco.Price of an oz. of standard gold in Flemish shillings banco.Par of exchange with London in Flemish shillings banco per £ sterling of gold.Corresponding price of an oz. of standard silver in London in pence.Corresponding price of an oz. of standard gold in London in £, etc.When the price of gold in London in bank-notes is per oz.The bullion par of exchange must be multiplied byWhen the price of dollars in London is per oz.The par of exchange in silver is£s.d.s.d.5·39119·3330·6070·974 0 0·9734 11½35·085·45120·6630·9470·194 1 0·9615 134·225·51121·9931·2869·434 2 0·9495 2½33·395·57123·3231·6368·684 3 0·9385 432·615·63124·6531·9767·954 4 0·9275 5½31·875·69125·9832·3367·234 5 0·9165 731·155·75127·3132·6866·534 6 0·9055 8½30·475·81128·6433·0365·844 7 0·8955 1029·825·87129·9633·3765·174 8 0·8855 11½29·195·93131·2933·7264·514 9 0·8756 128·595·99132·6234·0763·864 10 0·8656 2½28·026·05133·9534·4263·234 11 0·8566 427·466·11135·2834·7662·614 13 0·8386 5½26·936·17136·6135·08623·8934 15 0·8206 726·426·23137·9235·423·9314 17 0·8036 8½25·936·29139·2535·763·9684 19 0·7966 1025·466·35140·5736·114·0055 0 0·7796 11½256·41141·8936·454·0435 2 0·7647 124·556·47143·2136·794·0815 4 0·7497 224·136·53144·5437·144·1195 6 0·7356·59145·8637·484·1575 8 0·7216·65147·1937·834·1955 10 0·7086·71148·5138·184·2336·77149·8438·524·2706·83151·1738·874·3086·89152·5039·224·346
N.B.—3 marks are equal to 8 Flemish shillings banco. When dollars are 4s.11½d., standard is 2½d.more. When 6s.1d., 3d.more. When 7s., 3½d.more.
[Addressed to Penr[h]yn Arms, Bangor, North Wales.]
London,26 June, 1814.
My dear Sir,
... I cannot partake of your doubts respecting the effects of restrictions on the importation of corn in tending to lower the rate of interest. The rise of the price or rather the value of corn without any augmentation of capital must necessarily diminish the demand for other things even if the prices of those commodities did not rise with the price of corn, which they would (tho' slowly) certainly do. With the same capital there would be less production and less demand. Demand has no other limits but the want of power of paying for the commodities demanded. Everything which tends to diminish production tends to diminish this power. The rate of profits and of interest must depend on the proportion of production to the consumption necessary to such production,—this again essentially depends upon the cheapness of provisions, which is after all, whatever intervals we may be willing to allow, the great regulator of the wages of labour. Nothing can tend more effectually to diminish the demand abroad for our manufactures than to refuse to import corn and other commodities which we [had] usually taken in exchange for such manufactures. If we rigorously refused to import any [foreign] commodity whatever, I firmly believe that we should soon cease to export any commodity, even if we made gold an exception to the general rule. Our money would stand at a higher level than in other countries, but there are limits beyond which it could not go. All trade is at last a trade of barter, and no nation will long buy unless it can also sell,—nor will it long sell if it will not also buy. If by adopting such policy [sic] a country were to enhance the value of the raw materials which it consumed,of which corn is the principal, it would thereby lower the rate of interest. If otherwise, it might be deprived of many luxuries and many comforts, or might enjoy them in less abundance, but the rate of interest would not fall. This is a repetition, you will say, of the old story, and I might have spared you the trouble of reading at 200 miles distance what I had so often stated to you as my opinion before; but you have set me off, and must now abide the consequences. I never was more convinced of any proposition in Political Economy than that restrictions on importation of corn in an importing country have a tendency to lower profits. Remember me kindly to Mrs. Malthus.
Yours very truly,David Ricardo.
Gatcomb Park, near Minchin Hampton, Gloucestershire,25th July, 1814.
My dear Sir,
I am writing to you from Gatcomb, where I arrived with S—— as my companion yesterday afternoon. To enable me to quit London at the time I did I was obliged to bestow an unusual degree of attention to business of all sorts, and, though I had written a letter to you in answer to your last before I left Brook Street, I was so dissatisfied with it that I could not resolve to send it. I shall, I fear, succeed no better now, but you shall have it whatever it may be, as, if I defer writing any longer, you may have quitted Bangor before my letter arrives there[61]. It appears to me that you have changed the proposition on which we first appeared to differ. The proposition advanced by you, if I recollect right, was that restrictions on the importation of corn would not lower the rate of profits and interest,but now you add—or rather your argument leads to that conclusion,—'if the consequence of such restriction be a great reduction of capital.' So amended I should not object to the proposition,—but I think it material that causes should be kept distinct, and their due effects ascribed to each. Restrictions on the trade of corn, if capital suffers no diminution, will occasion a fall in the rate of profits and interest. A reduction of capital independently of restrictions on importation of corn will have a tendency to raise profits and interest,—but there is no necessary connection between these two operating causes, as they may at the same time be acting together or entirely in opposite directions. Effective demand, it appears to me, cannot augment or long continue stationary with a diminishing capital; and your question why if this were true profits rise at the commencement of a war? does not, I think, bear any connection with the argument, because profits will augment under a diminution of capital and produce, if demand though diminished does not diminish so rapidly as capital and produce. For the opposite reason profits will diminish when capital and produce increase. This is totally independent of the rate of production, and often, I think, may counteract the effects which usually follow, and in the long run will almost always follow, from increasing or diminishing capital. You say that 'the proportion of production to the consumption necessary to such production seems to be determined by the quantity of accumulated capital compared with the demand for the products of capital, and not by the mere difficulty and expense of procuring corn.' It appears to me that the difficulty and expense[62]of procuring corn will necessarily regulate the demand for the products of capital, for the demand must essentially depend on the price at which they can be afforded, and the prices of all commodities must increase if the price of corn be increased. The capitalist 'who may find it necessary to employ a hundred days' labour instead of fifty in order to produce a certain quantity of corn' cannot retain the same share for himself unless the labourers who are employed for a hundred days will be satisfied with the same quantity of corn for their subsistence that the labourers employed for fifty had before. If you suppose the price of corn doubled, the capital to be employed, estimated in money, will probably be also nearly doubled,—or at any rate will be greatly augmented; and, if his monied income is to arise from the sale of the corn which remains to him after defraying the charges of production, how is it possible to conceive that the rate of his profits will not be diminished? I hope you continue to enjoy yourself amidst the wild scenery with which you are encompassed.—The weather here is delightful, and I am as happy as I can be, separated from the whole family (except S——) and surrounded by upholsterers, carpenters, etc....
Yours very truly,David Ricardo.
I believe that in this sweet place I shall not sigh after the Stock Exchange and its enjoyments.
Gatcomb Park,11 Aug., 1814.
My dear Sir,
I received your letter last Sunday, and in the evening of that day Mrs. Ricardo and the rest of my family arrived here. I have been showing them all the beauties of this place, and my time has been pretty well engrossed by them these three last days.... The fall in Omnium is I believe to be attributed to our continuedexpenses, and the expectation of another loan before the payments on the present are completed. The present state of the Exchanges seem[s] to indicate a real fall in the value of foreign currencies; it cannot be attributed to any change of taste for particular commodities, or any other caprice. I expected that Peace would lower the value of foreign currency, but I confess not in the degree which has taken place. It leaves the question between us undecided—namely, whether the exchange is not operated upon solely by the relative preponderance of currency. Peace has rendered the currency of the continent much more efficacious to the business to be done.
With regard to our present question, we differ as to effects which mustnecessarilyfollow from restrictions on the importation of foreign corn. I do not think that a diminution of capital is anecessary, but a probable effect. We agree as to the consequences which will attend a diminution of capital, but I should say that a real diminution of capital will diminish the work to be done, and consequently will affect the wages of labour, and the demand for food. In the case supposed, restrictions on importation of corn, encouragement is given to the further cultivation of our own land,—butifaccompanied by a diminution of capital a discouragement is also given to the cultivation of the land, and whether profits rise or fall must in my opinion depend upon the degree of these contra-operating causes. It is true that the woollen or cotton manufacturer will not be able to work up the same quantity of goods with the same capital if he is obliged to pay more for the labour which he employs, but his profits will depend on the price at which his goods when manufactured will sell. If every person is determined to live on his revenue or income, without infringing on his capital, the rise of his goods will not be in the same proportion as the rise of labour, and consequently his percentage of profit will be diminished if he values his capital, which he must do, in money at the increased value to which all goods would rise in consequence of the rise of the wages of labour. In such case I should say that the effective demand had diminished, because the same quantity of commodities could not be annually consumed. If the same quantity of commodities continued to be consumed, then it must be evident that it would be at the expense of capital. In such case capital would diminish faster than demand, which would tend to keep up profits. But how long will [people] continue to indulge in luxuries at the expense of a continual diminution of capital? It is the road to ruin, and, though frequently persisted in by a few individuals, it is not often found to be the folly of nations. On the contrary, if any causes interrupt the progress of nations, if restrictions on their trade, or expensive wars, tend to diminish their capital, at such times more economy is practised, and, as Adam Smith has observed, the profusion of governments is counteracted by the frugality of individuals. If so, I cannot be incorrect in saying that, though for a short period capital and produce may diminish faster than demand,—yet in the long run effective demand cannot augment or continue stationary with a diminishing capital. You say, what I did not before understand you to admit, 'that the whole amount of demand will from advanced prices diminish of course, but the proportion of demand to supply, which is always the main point in question, as determining prices and profits, may continue to increase,as it does in all countries the capital of which is retrograde;' but I do not agree even to this explanation, and it appears to me to be at variance with an opinion which I have often heard you express, viz. The temptation to save from revenue to augment capital is always in proportion to the rate of profits, and, if from accumulation of capital profitsand interest should fall very low indeed, at that point accumulation would nearly stop, because it would be almost without an object. In this opinion I most cordially agree, and I cannot help thinking that it is at variance with the above sentence which I have quoted from your letter. I maintain, as I think you have done, that consumption as compared with production is always greatest where capital is most accumulated. Diminish the capital of England one half, and you undoubtedly augment profits, but it will not be in consequence of a greater proportion of demand but of a greater proportion of production; demand as compared with production could hardly fail to diminish. Individuals do not estimate their profits by the material production, but nations invariably do. If we had precisely the same amount of commodities of all descriptions in the year 1815 that we now have in 1814, as a nation we should be no richer; but, if money had sunk in value, they would be represented by a greater quantity of money, and individuals would be apt tothinkthemselves richer. I shall be in town either next week or the week after. I wish you would return here with me. We would discuss these important points in our shady groves. With kind regards to Mrs. Malthus,
I am, yours truly,David Ricardo.
Gatcomb Park, Minchin Hampton,30th Aug., 1814.
My dear Sir,
I left London on the 19th, the day before your letter arrived there, having dispatched all my business in four days. The appearance of the Omnium was not sufficiently inviting to induce me to protract my stay longer than wasabsolutely necessary. David[63], who is come to pass his holidays with us, brought me your letter. I regret that I shall not see you for some time, as you cannot come here, and I shall not have it in my power at present to visit Hail[e]ybury. I expected to have a great deal of leisure time in the country, but as yet I have not had any. Walking and riding with my family, and friends who have visited us, have entirely occupied me; besides which, the only room in my house which is not finished is the library, owing to the tedious time which they have taken to fix my bookcases.
I think if we could talk together we should notverymuch differ on the question which has lately engaged us; our principal difference is about the permanence of the effects. It will often happen that the scarcity of a commodity or the increasing demand for it will for a time increase profits; but it is not therefore correct to say that, where profits are high, they are so because the demand for produce is great compared with supply. There are many other causes which will occasion profits to be permanently high. There may be two countries, in one of which, from bad government and the consequent insecurity of property, or from the little disposition to saving in the people, profits may be permanently high and interest at 12 per cent., whilst in the other, where these causes do not operate, profits may be permanently low and interest at 5 per cent. It would surely be incorrect to say that the cause of the high profits was the greater proportion of demand for produce, when in both countries the supply would be or might be precisely equal to the demand and no more. In America profits are higher than in England, and yet I can have no doubt that the proportion of supplyto demand is greater in the former country. I think it must necessarily be so in all countries which are most rapidly increasing in riches, for from whence do riches come but from production preponderating over consumption? Profits are sometimes high when corn is scarce and dear; but this arises from the stimulus which the high prices give to industry. If the population could immediately accommodate itself to the scanty supply, no such effects would follow; and in fact they only continue till time has gradually equalised them.
I sometimes suspect that we do not attach the same meaning to the word 'demand.' If corn rises in price, [you] perhaps attribute it to a greater demand. I should [attribute it to] a greater competition. The demand cannot, I think, be said to increase if the quantity consumed be diminished, although much more money may be required to purchase the smaller than the larger quantity. If it were to be asked what the demand was for port-wine in England in the years 1813 and 1814, and it were to be answered that in the first year she had imported 5000 pipes, and in the next 4500, should we not all agree that the demand was greater in 1813? Yet it might be true that double the quantity of money was paid for the 4500 pipes.
Have you read the report of the Lord[s'] Committee on the Corn question? It discloses some important facts; but how ignorant the persons giving evidence appear to be of the subject as a matter of science! The Editor's remarks too are very unworthy of his paper.
... With best compliments to Mrs. Malthus,
I am, yours truly,David Ricardo.