The Project Gutenberg EBook of Letters of David Ricardo to Thomas Robert Malthus, 1810-1823, by David Ricardo This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at www.gutenberg.org Title: Letters of David Ricardo to Thomas Robert Malthus, 1810-1823 Author: David Ricardo Editor: James Bonar Release Date: June 7, 2011 [EBook #36345] Language: English Character set encoding: ISO-8859-1 *** START OF THIS PROJECT GUTENBERG EBOOK LETTERS *** Produced by Adrian Mastronardi and the Online Distributed Proofreading Team at http://www.pgdp.net (This file was produced from images generously made available by The Internet Archive/American Libraries.) LETTERS OF RICARDO TO MALTHUS London HENRY FROWDE Oxford University Press Warehouse Amen Corner, E.C. LETTERS OF DAVID RICARDO TO THOMAS ROBERT MALTHUS 1810-1823 EDITED BY JAMES BONAR M.A. OXFORD, LL.D. GLASGOW Oxford AT THE CLARENDON PRESS 1887 [All rights reserved] CONTENTS. PAGE 1. Preface vii 2. Outline of Subjects xix 3. Letters I to LXXXVIII 1-240 4. Chronicle 241 5. Index 245 PREFACE. The following Letters are printed for the first time from the original manuscripts, kindly lent for the purpose by Colonel Malthus, C.B. The representatives of Ricardo have been good enough to make search for the corresponding letters of Malthus, but without success. The Collection covers the whole period of the friendship of the two men. What is of purely private interest (a very small portion) has, as a rule, been omitted. There is seldom any obscurity in the text; the handwriting of Ricardo is clear and good. The earlier letters have no envelopes. The breaking of the seal has frequently torn a page, and destroyed a word or two. In two cases we have nothing but the fragment of a letter. But fortunately the bulk of the series has reached us in a complete state. These Letters were evidently known to Empson and MacCulloch, whose references to them are quoted in their proper place. Other letters of Ricardo, as well as his speeches in Parliament, are quoted here and there when they illustrate the text or fill up a gap. The Correspondence with J. B. Say is given at some length, as it is probably little known to English readers. The Outline of Subjects will be found to contain only a bare sketch of the main positions taken up by Ricardo against Malthus in these Letters. It could not fairly be expanded into an account of both sides of the argument, for, when we are within hearing of only one of the disputants, we cannot with fairness believe ourselves to have the whole case before us. We cannot accept his statement of the terms of the discussion, for, though he had every desire to be just to his opponent, his cast of mind was so different that he can hardly be thought to have entered into his opponent's views with perfect sympathy[1]. These Letters indeed show on almost every page how completely the two economists differed in their point of view. Beginning in a deep mutual respect, their acquaintance with each other grew into a very close intimacy; but it was the friendship of two men entirely unlike in mental character. Ricardo admits that he had been deeply impressed by the Essay on Population (p. 107), but thinks that Malthus is apt to miss the true subject of political economy, the inquiry into the distribution of wealth, and to confine himself to production, of which nothing can be made (pp. 111, 175); Malthus seems to his friend to have too strong a practical bias (p. 96); instead of reflecting on the general principles that determine (for example) the Foreign Exchanges, he tries to get light from Jamaica merchants and City bullion dealers (p. 3, cf. 12); he buries himself in temporary causes and effects instead of looking to permanent ones (p. 127); he gains his point by a definition instead of an argument (p. 237) and, perhaps through the same practical bias, he is too much absorbed in questions of his own College (p. 125), and not eager enough for political reform (pp. 151, 152). Malthus, Cambridge Wrangler and Haileybury Professor, was free from any academical bias in favour of abstract thinking; he had in fact little of the typical University man except his love of boating (p. 158). Ricardo, a self-made and largely a self-educated man[2] (though he had neither the pride of the first nor the vanity of the second), had no traditions that were not mercantile, and made a large fortune on the Stock Exchange[3]. But, in his thinking, he was under no slavery to details; he was even conscious of a strong theoretical bias (p. 96). He was fonder of 'imagining strong cases' to elucidate a principle, than of adducing actual incidents to establish it (pp. 164, 167). The very narrowness of his programme enabled him (as later it enabled Cobden and his school) to seem to exhaust all the difficulties of the subject, and dispose of them by plain straightforward proofs. Malthus, who had a less acute logical understanding, but saw more clearly the real breadth and complexity of the subject, seemed often more faltering, and less consistent with himself. Ricardo agreed with his friend in looking, on the whole, at the bright side of things, and forecasting prosperity for England even in the dark days of Luddites and Six Acts (pp. 139, 141). They were, both of them, unready writers, partly from deference to each other's criticism (pp. 20, 23, 117, 125, 155, 159, 207),—partly, in Ricardo's case, from awkwardness in composition, where he was always, in his own opinion, the worse man of the two (pp. 104, 108, 145, 208),—partly because the obscurity of the subject was felt by them to be inconsistent with dogmatic certainty (pp. 111, 176, 181). But they are free in their criticism; they never dream of allowing it to affect their good temper (pp. 175, 240), and they are never afraid to confess mistakes (pp. 20, 184, 207, 231, etc.). Personally, they agreed in enjoying society and travel, in loving 'law and order' and hating 'a row' (pp. 64, 208), and in being nowhere so happy as in their family circle, in Ricardo's case a patriarchally large one (p. 146). The robust health of Malthus was not shared by his friend (p. 140), but the latter had more of the qualities of a public man, and in the House of Commons he was by no means a silent member. Their range of interests was perhaps equally wide, though Ricardo's bent was to natural science as Malthus' to mathematics. In politics they were both in favour of Parliamentary Reform. Francis Place[4], writing in 1832 to a correspondent who had reproached Political Economists with hostility to reform, says that the study tends almost necessarily to political enlightenment, and points to Malthus, Mill, Ricardo, and others in [Pg v] [Pg vi] [Pg vii] [Pg viii] [Pg ix] confirmation. 'Mr. Malthus' (he says) 'was an aristocratic parson when he first published his Essay on Population ... but in going on with his work and being obliged to study political economy, his prejudices gave way before principles, and he became the advocate so far as he dared of good government. His work contains irrefragable arguments for universal suffrage, which cannot be overlooked, but must be applied by every reader who understands the subject; and there are also in his work other indications of what you and I should call liberal principles[5].' For myself, Place adds, I have been 'a plain Republican for forty years;' James Mill is 'as bad as myself.' As to Ricardo: 'He was one of the most enlightened of reformers I ever knew; he was a man who never concealed his opinions.' There is no doubt, from all the evidence, what these opinions were. Ricardo advocated a widely extended suffrage, frequent parliaments, and especially secret voting. In his speeches in the House of Commons, which are more than a hundred in number, from the first on the 25th March, 1819, to the last on the 4th July, 1823, he speaks his mind plainly not only on the Bank, the Sinking Fund, the currency, agriculture, the Poor Law, and the tariff, but on the reform of Parliament, retrenchment, freedom of the press and right of public meeting. His oratory seems in many respects to have resembled that of Cobden. The arguments were given with plain directness without elegance of diction; and they were brought home by matter-of-fact similes from every-day life or commercial experience. We know from Brougham that his manner of speaking was earnest, modest, genial, frank, and unaffected; and, as he only spoke on what he knew, he was always heard with attention[6], though his sentiments were unpalatable and he was usually in a hopeless minority. Bentham claimed to be the spiritual grandfather of Ricardo[7], and Ricardo may have got his first thoughts on Politics from him and Mill, as on Economics from Adam Smith; he may also have caught from Bentham his habit of reasoning abstractly. But the arguments he uses on behalf of his political opinions are such as to leave the impression that he reached his politics through his political economy, the former being only the latter from a different point of view. He seems to construct his notion of a free government on the lines of his notion of a free trade. When he takes the unpopular side in the case of the Carliles[8], imprisoned for blasphemous libel, he is not unfairly described by Wilberforce as simply 'carrying into more weighty matters those principles of free trade which he has so successfully expounded' in other cases. His interest in popular education seems to spring from the desire that our people may be rightly equipped for industrial competition. He attends a City dinner to the Spanish Minister at a time when the European Powers are threatening Spain, and appeals to the principle of Non- Intervention[9], thus anticipating the Manchester School and applying laissez faire on the large scale. He applies the same principles perhaps too abstractly in the case of the Spitalfield Acts[10], which made the wages of the silkweavers to be fixed by the Justices instead of by the 'higgling of the market,' and in the case of the Truck System[11], or payment of wages in kind; but there was much to justify his hostility to the first, and there was Robert Owen's successful use of something very like the Truck system in New Lanark to excuse his defence of the second. He had a statesman's willingness to accept part where he could not get the whole, and to welcome a compromise rather than no progress at all. He would not abolish the Corn Laws at a stroke, but would prepare our agriculturists for the change by lessening the duty on imports year by year till nothing was left but 10s. a quarter, to remain as a 'countervailing duty' roughly equal in amount to the peculiar burdens of the British agriculturist[12]. Some of his opponents called him a 'mere theorist'; but this is a common taunt of men who cannot render a reason against men who can. Even his disciple MacCulloch thinks that his investigations were 'too abstract to be of much practical utility[13].' But in his own hands they were not so abstract that they were divorced from practice, or unmodified by the needs of each case. Such measures as he recommended in the House were of great practical utility, and have nearly all been embodied in subsequent legislation; yet he founded them all on certain general principles which in the order of his thinking were economical first and political afterwards. As far as politics are concerned, we find the principles abstract simply because they are not in our own day the principles most needed in legislation. In short, Ricardo's thinking was abstract only in the sense in which Bentham's was so. They had arrived, by a different road, at the same political philosophy. Ricardo had a fixed idea of the individual as being logically prior to society; and the interest of the community only meant to him the interest of a large number of individuals, the collection as a whole having no qualities not possessed by each of the parts, and there being no spiritual bond. Nature (which means in this case theory instead of history) begins and ends with individuals; Nature made the individuals, and Man made the groups. Ricardo agreed with Bentham that 'the community is a fictitious Body, composed of individual persons who are considered as constituting, as it were, its Members. The interest of the community then is what? The sum of the interests of the several members who compose it[14].' We find Ricardo arguing: 'Let me know what the state of men's interests is, and I will tell you what measures they will recommend;' and 'that State is most perfect in which all sanctions concur to make it the interest of all men to be virtuous,' in other words, to promote the general happiness[15]. Now, to consider human beings as first and chiefly separate from one another and having a separate self-interest which rules their action, is certainly to reason abstractly. But this abstract reasoning of the Philosophical Radicals is due, in the case of the Economists among them, more to Adam Smith than to Bentham. Most of them, like Ricardo, had got not only their first economics but their first lessons in thinking, from the 'Wealth of Nations.' The 'Wealth of Nations' bore the stamp of that Individualism which we usually associate with Rousseau. Its author had written, seventeen years before, a book in which he gave almost exclusive consideration to the common bond that unites man to man, the power one man has of putting himself by thought in the place of another, or (in a wide sense of the word) to sympathy. There is no need to suppose that Adam Smith had forgotten or recanted the 'Moral Sentiments;' but it is certainly the case that in the later and greater work, which became the text-book of Political Economy, he deliberately takes up another point of view, and presents men as dominated by private interest. With every allowance for his frequent qualifications ('upon the whole,' 'in many respects,' etc.), there is no doubt that he there considers 'the natural effort which every man is continually making to better his own condition' as a principle of growth and health which owes little or nothing to State or Society, but is continually transforming them and bringing good out of their evil. He is fully aware how industry in all its forms has been affected by the government and civilization of a people; but he regards industry itself, or the commercial ambition of the industrious classes, as more potent still. As far as industrial progress is concerned, he would have said with Bentham that Nature begins and ends with individuals; in matters of trade he has no confidence in associations of men, even when they are voluntary. To him, the really beneficent association is that unintended and unpreventible organization resulting from the division of labour, the separation of trades, and the uncontrolled movements of commercial ambition on the part of individual men. He is careful to say that Political Economy is not Politics[16]; but he insists that all political restraints and preferences must be taken away from industry, and 'the obvious and simple system of natural liberty' will 'establish itself of its own accord.' It is not surprising that this lesson in individualism was learned by his successors without the cautions with which the teacher would have surrounded it. The pupils unconsciously argued as if political individualism was part and parcel of economical principles, for it certainly seemed so in the one book of their teacher that they had been led to study; and, when Bentham made self-interest a leading principle of politics, Ricardo, to follow him, needed only to make clear to himself the underlying political basis of his economical ideas. In Malthus, economical individualism is held in check by a strong devotion to the principle of nationality, as well as by a wide range of philosophical and general interests. But to Ricardo political economy is all in all; the ruling principles of all his thinking are determined for him by the economical; and the result is individualism in politics as well as in political economy. The animosity of his critics is perhaps as often due to their strong dislike of this political philosophy underlying his doctrines, and derived through Adam Smith from Rousseau, as to any real or supposed abstractness of the doctrines themselves. Ricardo's political work has therefore the merits and the defects of the theory of individualism and policy of laissez faire, which crowned its achievements with the Repeal of the Corn Laws and Navigation Acts. John Stuart Mill, who was bred an individualist, has left us in his writings a faithful reflection of the change which has passed over English politics and English economics in the course of his lifetime, and [Pg x] [Pg xi] [Pg xii] [Pg xiii] [Pg xiv] [Pg xv] which he himself welcomed with some misgivings. We have ceased to believe that the removal of obstacles is enough to secure the highest good either in government or in industry. But we must not deny that the Manchester School and its predecessors were indispensable in their own day. It is sometimes said that in addition to the faults of his school, Ricardo had flaws of his own which were due to a certain strong bias of self-interest[17]. We might answer that his arguments must none the less stand or fall by their own logic. But there is no reason to suppose any bias in Ricardo except his peculiar character of mind and cast of thought. He had the intellectual interest of a reasonable man in getting the right instead of the wrong answer to a difficult question; and his selfish interest as a member of the 'propertied' classes was not clear enough to be a snare to him. 'It would puzzle a good accountant' (he says in the House[18]) 'to make out on which side my interest predominated; I should find it difficult myself from the different kinds of property which I possess (no part funded property) to determine the question.' He could be chivalrous and even Quixotic on occasion. His best political friends[19] thought he was Quixotic when he proposed to levy a high property tax to pay off the National Debt: 'I should contribute any portion of my own property for the attainment of this great end if others would do the same[20].' There was chivalry in his praise of Cobbett's Letter to the Luddites[21]; Cobbett had given him abuse unmixed with any drop of generosity. We may therefore look in vain in Ricardo for any feeling of antipathy to landlords or any other body of men, though he spoke, as in duty bound, against landlords, bank directors, and all classes of monopolists, whenever they stood in the way of urgent reforms. Like other men, he not improbably had a lurking partiality for what had been the main business of his working life. But in his writings and speeches he gives us not feelings but arguments, and arguments that cannot be dismissed as feelings in disguise. In the purely economical works there is more of abstract theory than the author is ever fully aware. Not only did he as an individualist habitually regard men as separate competing atoms, and the desire of wealth as the permanent and dominant motive of men[22]; but he made his general statements too absolute. He sometimes guarded himself by saying (as he does in these Letters): What I am laying down is true over any considerable period of time; the causes to which I point are permanent; I allow that other causes may prevail for short intervals; temporary causes may seem to overrule the permanent ones; but I look to the final settlement. Nevertheless, he admitted more than once in the course of his career that he had stated the permanent causes too absolutely. The doctrine of Value is first presented by him as extremely simple,—the value of a thing depends on the labour employed in producing it. Then, as we go on, we find this is only true of 'the early stages of society before much machinery or durable capital is used,' while it is not meant to be true, even there, of objects that have a 'fancy' value, due purely to their scarcity. Next, we are told that in modern times the relative value of two things is affected by the proportions in which fixed capital and circulating enter into their production; if fixed capital enters more into one than into another, then a rise of wages will lower the value of the first, for it will lower the rate of profits, and, as there are more profits concerned in the first, the value of this first will fall in relation to the other. This is not all;—if two things are produced with a like amount of fixed capital, yet, if the durability of the capital is different, there will be more labour where there is less durability, and more profits where there is more durability; the things produced by the more durable fixed capital will be lowered in value by a rise in wages, which lowers the rate of profit; and so on, mutatis mutandis. In short, value is affected not only by labour, but by the wages of labour. To these concessions we may add the important change of view, which (as we know from these Letters) made MacCulloch tremble for the Ark of his Covenant[23]; we had heard nothing at first but the praise of machinery as lowering prices and increasing the general wealth; now we are reminded that the invention of it may for the time cause serious injury to the working classes[24]. It is not difficult for men living two generations after Ricardo, and having (as he himself expressed it[25]) 'all the wisdom of their ancestors and a little more into the bargain,' to point out many unjustified assumptions, many ambiguous terms, and even many wavering utterances, in Ricardo's 'Principles,' in spite of their appearance of severe logic. The author's detached practical pamphlets were in those respects far more powerful than this volume of imperfectly connected essays on general theory. The flattering importunities of friends had induced an unsystematic writer to attempt a systematic treatise[26]. The cardinal doctrine, that of Value, is applied to only one class of cases, and, even to that, with serious modifications. It was left for later economists, like Jevons in this country, and Menger and Böhm Bawerk in Germany, to take up the task of giving a theory of value that will embrace all cases of it, not excluding those objects that possess a value 'wholly independent of the quantity of labour originally necessary to produce them, and varying with the varying wealth and inclinations of those who are desirous to possess them[27].' Malthus has left a clear statement of the points at issue between Ricardo and himself in the Quarterly Review for January, 1824. He contended against Ricardo that (1) Quantity of Labour is not the chief cause of Value, but (2) 'Supply and Demand' are more truly so described, while (3) Competition of Capital, and not fertility of the soil, determines the rate of profits. But, in regard to the first, he hardly gives Ricardo sufficient credit for his large concessions. In regard to the second, he does not realize that supply and demand are vague terms which can only be made definite by a theory of value itself. In regard to the third position, if fertility of soil be translated productiveness of the staple industry, Ricardo's view seems nearer the truth than his own. The inadequacy of the whole discussion on this third head is largely due to the fact that economists had not then been pushed by Socialism into a thorough investigation of Profits and Interest. They were content to borrow these ideas from every-day commercial life, and treat them as given ultimate facts needing no explanation. They therefore never fully accomplished the very first task of Political Economy, to state the facts as they are, and analyse into its fundamental laws the existing industrial system of modern nations. Still less did they fulfil its second task, to estimate the relation of the industrial system to the larger social and political body in which it lives and moves and has its being. The peculiar wants and motives of an individual people, changing, as they do, with the growth of civilization, must be viewed in their effects upon the production and distribution of the national wealth, if the truth about the latter is to be fully known. It is because the older economists did not attempt this that their discussions, carried on even by their most eminent representative men, seem to later readers superficial and unreal. But in their Economics, as in their Politics, they had their own work and not ours to do; and we must not blame them for not answering questions that have only very recently occurred to ourselves. OUTLINE OF SUBJECTS. In only two cases do the letters of this collection form groups that have a subject of their own not discussed at any length in the other letters. Letters I to XIV are the only ones that discuss at any length the influence of the Depreciation of the Currency on the Foreign Exchanges. Letters LXXVIII to LXXXVIII are the only ones that so discuss the Measure of Value. After these the nearest approach to continuity is perhaps in Letters LXXI to LXXVII, when Over-production is the chief subject. But the discussion of Rent, Wages and Profits is not conducted by chapters as in a book; it follows the course of conversations which were not recorded, and obeys suggestions that are given in replies lost to us. We cannot hope to make the propositions on these three heads fall into a consecutive logical series. The following analysis of the letters is not meant to be exhaustive. Ricardo's opinions on the Bank of England (XXXV, etc.) and on the East India College (XL, etc.), for example, will not be found in it. It is simply a statement of the chief economical arguments. In the early letters the correspondence turns chiefly on matters made prominent at the time (1810 seq.) by the Bullion Committee and [Pg xvi] [Pg xvii] [Pg xviii] [Pg xix] Ricardo's own pamphlet, 'The High Price of Gold Bullion.' Though this pamphlet did not appear in its separate form till early in 1810, the matter of it had been published by Ricardo in a series of letters to the 'Morning Chronicle' beginning in September, 1809. These letters brought their author into public notice, and they seem to have led Malthus to seek his acquaintance. The earliest letters (of which Letter I in this collection was clearly not the first of the whole correspondence) were naturally on the subjects that first brought the two men together. Ricardo's main positions as against Malthus are as follows:— 1. The amount of the currency of a nation is determined for it not simply by its size and population but by the nature and extent of its trading transactions; and yet, when these elements are given, the currency of one nation will stand to the currency of another in some ascertainable normal proportion, to alter which is to alter the relative value of the currencies affected (VI, VII, X). 2. Such events as a bad harvest, a change in articles of consumption or the transmission of a subsidy abroad, will, by altering the relative value of our currency, produce effects on the exchanges which, apart from their own specific remedy, are permanent, not transitory (I, VII, X). 3. An increase in the amount of gold and silver in a country will lead to an increased use of these metals for general purposes rather than to a proportionate fall in their value, there (II, III). 4. An increase in the value of a nation's exports and imports may involve no increase of its wealth or its capital, but may be due to a mere change from one set of articles of consumption to another, or to a carrying trade with foreign capital (IV). 5. In any case, such an increase is not the cause, but the effect of a change in the currency; it is a sign that money is going from where it is cheap to where it is dear (IV, VI, IX, cf. XII and XVII), and the Exchanges are an accurate measure of the difference (VII). 6. There has certainly been an increase of wealth in our own country in recent years, but it has not necessarily been accompanied with an increased rate of profits (V, cf. XX). In Letters XV to XXI the following are the chief propositions:— 1. Restrictions on the importation of corn by keeping up the price of necessaries have a tendency to lower profits (XV), unless, indeed, they are followed by a great reduction of capital (XVI, XVII). 2. The only cause of permanently high or low profits is the facility of procuring necessaries, for on that mainly depends the rate of wages (XVI, XVIII, XIX, XX, XXI, cf. V, and for qualification LXXIX, LXXX). 3. Other causes, such as bad harvests, new taxation, changes in demand, or excessive accumulation, are merely temporary (XX, XXI, cf. Ricardo's Pol. Econ. and Tax., ch. vi. 'On Profits'). 4. Improvements in agriculture or machinery by increasing productiveness permanently increase profits (XX, cf. V and XXIII). To these may be added— 5. Consumption and accumulation equally promote demand, and are both of them ineradicable tendencies of our nature, the one adding to our enjoyments, the other to our power (XIX). 6. Accumulation increases not only production, but consumption (XXI). 7. It is worth while to establish the truth of a principle, even if we cannot establish its utility (XXI). In Letters XXIII to LXVIII, and in LXXVIII to LXXX, the positions are as follows:— 1. By importing cheap foreign corn the public saves the whole difference in price (XXIII, XXIV). 2. It must be allowed that the prices of articles, besides varying with the amount of necessary labour bestowed on them, vary with the value of their raw material (XXV). 3. Apart from changes in the currency, a rise in the price of corn and a fall in the corn wages of labour, would be a contradiction (XXVI). 4. It follows from the principle of Population that the rate, as distinguished from the amount, of agricultural production, grows not greater, but less, when the increase of population drives agriculture to the cultivation of poorer soils (XXVII, XXVIII, cf. XLIX). 5. This means that the whole cost in corn will be greater in proportion to the whole produce of corn, and, though the whole cost in money may be less in proportion to the whole produce in money, the rate of profits from farming will fall (XXIX). 6. A tax on home corn raises prices twice over, and should be accompanied by a countervailing duty, not necessary in other cases (XXIX). 7. In order of time, the increased price of corn comes first, and the costly cultivation second, but this increase of farmers' profits may be due to a fall in general profits that is itself caused by the increased price of corn (XXIX). 8. The progress of wealth has a tendency to lower profits and increase rent (XXIX). 9. Mere increase in quantity of corn will not prevent increase in price if the numbers of consumers have increased in equal or greater proportion. So it will be one day in America (XXX). 10. A rise in the price of corn will not be followed by a rise in the price of other commodities, but by a fall in profits (XXXI, XXXIV, XXXV). 11. An addition of rich land to our island would reduce the price of corn by reducing the cost of raising the total supply of corn; and it would not raise the value of manufactured goods (XXXII). 12. High prices, whether caused by depreciation of money or by difficulty of production, are not a public benefit; in the first case, they are a cause of distress, especially to the working classes; in the second, they are a sign but not a cause of prosperity (XXXIII, XXXIV). 13. Facility of production includes skill and appliances as well as fertility of soil, and in that sense, when suddenly introduced in a fertile country, it would for some time extinguish rent (XXXVI). 14. There is no real distinction between productiveness of industry and productiveness of capital; and in the progress of society both of them will diminish, and rents will increase (XXXVI). 15. Wages do not rise when labour is productive unless the productiveness of the labour gives rise to a new capital that demands new labour (XXXVII). 16. There can be no such demand for new labour unless there is a reduction in the value of food (XXXVII). 17. The only permanent cause of diminished demand for capital is the increased price of food (XXXVIII). 18. Low prices are not necessarily a discouragement to production (XXXIX). 19. The need of cultivating less productive soils is the cause of higher nominal and lower real wages (XLII), and it is the only cause in constant and permanent operation (XLVIII, cf. LXIX). 20. Profits depend on wages; wages on the supply and demand of labour, and on the cost of the labourers' necessaries (XLIX). 21. Profits will therefore rise if the last are easily produced, unless through stationariness of population demand for labour has increased (L). 22. In two lands with equal capital and equal population, but with different fertility of soil, profits would differ in favour of the more fertile (L). 23. The rate of interest is no sure indication of the rate of profits; and a low rate of interest may co-exist with a low rate of wages and a high rate of profits (LXIII). 24. Profits cannot be said to depend on 'the proportion which capital bears to labour,' for, where profits were lowest, most capital would be needed to produce a given return, and, where highest, least, in proportion (LI). 25. By a rise in the value of money it is possible (though not probable) that a reduced cost of labour, materials, and machinery might be followed by an increase instead of a reduction, in their money value (LXIII). [Pg xx] [Pg xxi] [Pg xxii] [Pg xxiii] 26. A dearth may increase profits and wealth by making labour cheap (LXIII). 27. Free trade in corn may increase the amount of profits more than a policy of Restriction may increase the amount of Rents (LXVII, cf. LXX). 28. Rent is always a transfer, and never a creation of wealth (LIII, LXVIII). 29. There cannot be two rates of profit at the same time in the same country (LXXVIII), nor under free trade could there be a very different rate in different countries, the cost of necessaries and therefore the rate of wages being brought nearly to a level, allowance being made for differences between one country and another in regard to the standard of living (LXXIX). It seems impossible that under free trade a fertile country, unless agriculture were its sole and only industry, and its capital were small, would long continue to sell its corn at the high prices of its less favoured rivals; the prices would fall to cost price (LXXX). In Letter LXV, and in Letters LXIX to LXXVII, the positions are as follows:— 1. Natural Price should not be described as depending, like Market Price, on Supply and Demand, for it can never permanently fall below or rise above the expenses of production (LXV). 2. A universal over-production is impossible (LXXII, LXXVII), and a glut of particular articles may be cured by a cessation in the production of those articles (LXXII); a 'superior genius' might so lay out our capital even now, that all might be prosperous (LXXIII). 3. It is not demand, but supply, which regulates value, and supply is itself determined by comparative cost of production (LXXIII, LXXIV). 4. If all labour and capital were devoted to production of necessaries, there might then be an over-supply or general glut, of them; but in no other case is such a glut possible (LXXIV, LXXVII). 5. Over-production tends to cure itself by destroying profits, and thereby removing the producer's motive for production. But production could not go on when this point had been reached, and therefore the over-production could not last (LXXVI). 6. The remedy would be not the greater consumption of non-producers, but the payment of lower wages, which means the securing of higher profits by the producers. When wages are excessive, the labourers are the unproductive consumers, and the employers who pay them are thereby causing instead of curing the over-production (LXXVI, LXXVII). 7. A diminished demand for labour may mean, not the employment of fewer men, but the payment of lower wages (LXXVII). In Letters LXXVIII to LXXXVIII the positions are:— 1. It is better to take, as a Measure of Value, some foreign commodity [like gold], the cost of producing which is nearly invariable, than to estimate either by the amount of labour or by the amount of corn or of other goods generally that will be purchased by the article measured (LXXVII, LXXVIII). 2. There is nothing in the said labour which fits it to be a better measure of value than anything else; but, on the contrary, to use it as a measure is to involve ourselves in paradoxes (LXXXIII, LXXXV to LXXXVIII). 3. There cannot be an absolute or universal measure of value, for there is no uniformity in the conditions under which commodities are produced, the time taken and the proportion and durability of the capital employed being, for example, very different (LXXXIV). LETTERS OF DAVID RICARDO TO THOMAS ROBERT MALTHUS. I. Stock Exchange, 25th Feb., 1810. My dear Sir, I have just time, after a very busy day, to tell you that I will endeavour to get Mr. Mushet[28] to meet you at my house at breakfast on Sunday morning. At any rate I shall expect you, and, if Mushet is engaged, I shall be able to tell you whether he will meet us on Monday or Tuesday in the City. He is exceedingly obliging, and would I am sure not mind trouble if he could contribute to throw light on the subject of exchanges, yet I think he will not be inclined to publish anything under his own name as he gave great offence to the higher powers on a former occasion. You have clearly stated the point of difference now between us; I think we never so well understood each other before. There are some causes which operate on the exchange which are in their nature of transitory duration; there are others which have a more permanent character. If we agree that a change of taste in one country for the commodities of the other,—and the transmission of a subsidy will produce certain effects on the exchange,—the only question between us is as to their duration. I am of opinion that they will operate for a very considerable time and that in fact recourse is not had to bullion but as a last resort. I cannot believe that you give a correct account of your habits of application any more than you did of your memory when I last saw you. From all my observations I should have been led to the very opposite conclusions from those which you have formed; and I believe most of your friends would be of my opinion. When you have once fairly begun, I expect that you will advance at a giant's pace. I beg you to remember me kindly to Mrs. Malthus. I am, my dear Sir, Yours very truly, David Ricardo. II. Stock Exchange, 22 March, 1810. My dear Sir, Mrs. Ricardo is expecting Mrs. Malthus to accompany her on Friday next to Knyvett's concert, and will, I am sure, be very much [Pg xxiv] [Pg 1] [Pg 2] disappointed at the information which I am to give her that she will not be able to accompany you to town. I will not however quite give up all hopes of seeing her. You must positively not think of leaving us before Tuesday. I have engaged several of your friends to meet you at dinner on Monday, and I not only advance my own claims but those of Mr. Wishaw[29], Mr. Sharp[30], Mr. Tennant[31], and Mr. Dumont[32]. I have been making enquiries concerning a bullion merchant. I find that the trade is mostly carried on by a class of people not particularly scrupulous in their modes of getting money, and I am told that they would not be very communicative, particularly on the subject of their exports. There are however some well-informed merchants who know a great deal of the trade without themselves being actively engaged in it, to whom I hope I shall be able to introduce you. I do not admit that if you were to double the medium of exchange it would fall to half its former value, not even if you were also to double the quantity of metal which was the standard of such medium. The consumption would increase in consequence of its diminished value, and the fall of its value would be regulated precisely by the same law as the fall in the value of indigo, sugar, or coffee. Mr. Mushet will dine with us on Sunday. What do you think of Mr. Vansittart's financial talents? Yours very truly, David Ricardo. Note.—Speaking in the House of Commons on Agricultural Distress, on May 7, 1822, Ricardo gives an illustration which bears on some points in the foregoing and following letters: 'Suppose my own case. I am possessed of a considerable quantity of land, the whole unburthened with a single debt. Now according to the honourable member (Mr. Attwood) I and the tenants on that land would have only been injured to the amount of the increase which the change in the value of money has made in the burthen of taxation; but we are in point of fact injured much more.' 'The superabundant supply' has caused a sinking in the value of corn greater than in proportion to the additional quantity itself. To understand why, take the case of a commodity introduced for the first time, say a particular kind of superfine cloth: 'If 10,000 yards of this cloth were imported, under such circumstances, many persons would be desirous of purchasing it, and the price consequently would be enormously high. Suppose this quantity of cloth to be doubled; the aggregate value of the 20,000 yards would be much more considerable than the aggregate value of the 10,000 yards, for the article would still be scarce and therefore in great demand. If the quantity of cloth were to be again doubled, the effect would still be the same, for, although each particular yard of the 40,000 would fall in price, the value of the whole would be greater than that of the 20,000. But, if they went on in this way increasing the quantity of the cloth until it came within the reach of the purchase [sic] of every class in the country, from that time any addition to its quantity would diminish the aggregate value. This argument would apply to corn. Corn is an article which is necessarily limited in its consumption, and, if you went on increasing it in quantity, its aggregate value would be diminished beyond that of a smaller quantity. I make an exception in favour of money. If there were only £100,000 in this country, it would answer all the purposes of a more extended circulation; but, if the quantity were increased, the value of commodities would alter only in proportion to the increase, because there is no necessary limitation of the quantity of money [wanted].' (Cf. Letter III, p. 3.) So on June 12th he says: 'Quantity regulates the value of everything,' though it is also true (he says in a speech of May 9, 1822) 'that the price of every commodity is constituted by the wages of labour and the produce [sic] of stock.' III. Stock Exchange, 24 March, 1810. My dear Sir, I have left you quite free for Friday, but I regret that your engagements will not conveniently allow you to come to us on that day. We shall expect you on Saturday morning. I hope Mrs. Malthus' visit will not be deferred longer than the next meeting of the King of Clubs[33]. It appears to me that you ascribe the difference in the variations of price which would probably be the effect of doubling the quantity of coffee, sugar, or indigo, on [the] one hand, or of doubling the quantity of the precious metals on the other, to a wrong cause. Coffee, sugar, and indigo are commodities for which, although there would be an increased use if they were to sink much in value, still, as they are not applicable to a great variety of new purposes, the demand would necessarily be limited; not so with gold and silver. These metals exist in a degree of scarcity, and are applicable to a great variety of new uses; the fall of their price, in consequence of augmented quantity, would always be checked, not only by an increased demand for those purposes to which they had before been applied, but to the want of them for entirely new employments. If they were in sufficient abundance, we might even make our tea-kettles and saucepans of them. It is to this essential difference between these commodities, and not to the circumstance of one of them being employed as a circulating medium, that I should attribute the different effects which would follow from the augmentation of their quantity. In any point of view however I do not see how it bears materially on the question between us, namely whether the precious metals are frequently resorted to for the payment of debts between countries when no disturbance has taken place in the amount or proportion of the currency. I wonder as you do that the stocks have not felt the effects of Mr. Vansittart's vigorous system. The delay which has taken place in creating new stock, the good news from abroad, and, above all, the want of reflection in the mass of stockholders may be considered as the cause. Ever truly yours, David Ricardo. Note.—'The King of Clubs' is described in the Life of Sir James Mackintosh, (by his son,—2nd ed. 1836), vol. i. p. 137 (under date 1800): 'As an agreeable rallying point in addition to the ordinary meetings of a social circle, a dinner-club (christened "The King of Clubs" by Mr. Robert Smith [Bobus, brother of Sydney Smith]), was founded by a party at his [Mackintosh's] house, consisting of himself [Mackintosh] and the five following gentlemen, all of whom still survive:—Mr. Rogers, Mr. Sharp, Mr. Robert Smith, Mr. Scarlett, and Mr. John Allen. To these original members were afterwards added the names of many of the most distinguished men of the time; and it was with parental pride and satisfaction that he received intelligence some time after of their "being compelled to exclude strangers and to limit their numbers, so that in what way 'The King of Clubs' eats, by what secret rites and institutions it is conducted, must be matter of conjecture to the ingenious antiquary, but can never be regularly transmitted to posterity by the faithful historian."'—The biographer adds in a note that the Club was suddenly dissolved in the year 1824. Some of the most distinguished members are enumerated, among them Ricardo (l. c. p. 138 n.). To judge by a letter of Mackintosh to Sharp on 29th June, 1804, the Club at that date included (besides the writer and his correspondent) only Sydney Smith, Scarlett, Boddington, the poet Rogers, Whishaw, and Horner (Mack. Life, vol. i. 209). The time of meeting seems to have been the first Saturday of every month. See below Letter XLIV, but cf. XLIII. Add Memoirs of Horner, i. 193, under date April 1802, and Holland's Memoir of Sydney Smith i. 91, &c. IV. London, 10 Aug., 1810. My dear Sir, On my return to London, after a short excursion to Tunbridge Wells, I found your obliging letter.... On further reflection I am confirmed in the opinion which I gave with regard to the effect of opening new markets or extending the old. I most readily allow that since the war not only the nominal but the real value of our exports and imports has increased; but I do not see how this admission will favour the [Pg 3] [Pg 4] [Pg 5] [Pg 6] [Pg 7] view which you take of the subject. England may have extended its carrying trade with the capital of other countries. Instead of exporting sugar and coffee direct from Guadaloupe and Martinique to the continent of Europe, the planters in those colonies may first export them to England, and from England to the continent. In this case the list of our exports and imports will be swelled without any increase of British capital. The taste for some foreign commodity may have increased in England at the expense of the consumption of some home commodity. This would again swell the value of our exports and imports, but does not prove a general increase of profits nor any material growth of prosperity. I am of opinion that the increased value of commodities is always the effect of an increase either in the quantity of the circulating medium or in its power, by the improvements in economy [in] its use [sic][34],—and is never the cause[35]. It is the diminished value, I mean nominal value, of commodities, which is the great cause of the increased production of the mines; but the increased nominal value of commodities can never call money into circulation. It is certainly an effect and not a cause. I am writing in a noisy place; you must therefore excuse all blunders. I must offer the same apology for my two half sheets[36]. I did not like to copy the first half over again. With best compliments to Mrs. Malthus, I remain, Yours very sincerely, David Ricardo. V. Stock Exchange, 17 Aug., 1810. My dear Sir, ... I cannot deny myself the pleasure of accepting your kind invitation for Saturday next. I will be with you at the usual hour. That we have experienced a great increase of wealth and prosperity since the commencement of the war, I am amongst the foremost to believe; but it is not certain that such increase must have been attended by increased profits, or rather an increased rate of profits, for that is the question between us. I have little doubt however that for a long period, during the interval you mention[37], there has been an increased rate of profits, but it has been accompanied with such decided improvements of agriculture both here and abroad, for the French Revolution was exceedingly favourable to the increased production of food, that it is perfectly reconcileable to my theory. My conclusion is that there has been a rapid increase...