Chapter III: Part 3

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.

XVII.

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 continued expenses, 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 must _necessarily_ follow from restrictions on the importation of foreign corn. I do not think that a diminution of capital is a _necessary_, 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,--but _if_ accompanied 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 profits and 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 to _think_ themselves 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.

XVIII.

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 was absolutely 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 not _very_ much 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 supply to 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.

NOTE.--The 'Editor' was Lord Hardwicke, who moved for the Committee
10th June, 1814, and presented its report to the House on 23rd Nov.
1814. See Hansard, under date Feb. 17, 1815, p. 796; Ann. Register
1815, Gen. Hist. p. 130. The reports were 'ordered to be printed'
25th July, 1814. The first was on a single sheet, and was simply a
complaint that the Committee could not take evidence; the second
reported that they had heard evidence, but thought that before any
certain conclusions could be reached the inquiry must go on further.
There is a copiously annotated copy of them in the 'Place'
Collection in the British Museum.

XIX.

GATCOMB PARK, _16 Sept., 1814_.

MY DEAR SIR,

... I agree with you that, when capital is scanty compared with the means of employing it, from whatever cause arising, profits will be high. Whether temporarily or permanently must of course depend upon whether the cause be temporary or permanent. It is, however, very important to ascertain what the causes are which make capital scanty compared with the means of employing it, and how far, when ascertained, they may be considered temporary or permanent.

It is in this inquiry that I am led to believe that the state of the cultivation of the land is almost the only great permanent cause. There are other circumstances which are attended with temporary effects of more or less duration and frequently operate partially on particular trades. The state of production from the land, compared with the means necessary to make it produce, operates on all, and is alone lasting in its effects.

We agree too that effectual demand consists of two elements, the _power_ and the _will_ to purchase; but I think the will is very seldom wanting where the power exists, for the desire of accumulation will occasion demand just as effectually as a desire to consume; it will only change the objects on which the demand will exercise itself. If you think that, with an increase of capital, men will become indifferent both to consumption and accumulation, then you are correct in opposing Mr. Mill's idea[64], that in reference to a nation supply can never exceed demand; but does not an increase of capital beget an increased inclination for luxuries of all descriptions? and, though it appears natural that the desire of accumulation should decrease with an increase of capital and diminished profits, it appears equally probable that consumption will increase in the same ratio. Exchanges will be as active as ever; the objects only will be altered. If demand _appears_ more active where capital is scarce, it is only because the _power_ to purchase is comparatively greater. Wherever capital is scanty, the necessaries of life are cheap, if the country is commonly fertile; and, as capital and population increase, the necessaries of life rise in price, and thus is the power of purchasing, though really greater, comparatively less. In a country with little comparative capital, the value of the yearly produce may very rapidly increase; and, if it be said to be in consequence of the greatness of demand, I should contend that in such country the demand would not be limited in the same degree by a want of power as in a country abounding in capital, and merely because provisions would not rise in the same proportion in the two countries. If half as much corn [again] as usual were produced next year, a great part of it would undoubtedly be wasted; and the same might be said of any commodities which we might be ingenious enough to name: but the real question is this--If money should retain the same value next year, would any man (if he had it) want the will to spend half as much again as he now does? and, if he did want the will, would he feel no inclination to add the increase of his revenue to his capital and employ it as such? In short, I consider the wants and tastes of mankind as unlimited. We all wish to add to our enjoyments or to our power. Consumption adds to our enjoyments, accumulation to our power, and they equally promote demand.

Mrs. Ricardo and I are going this morning to Cheltenham, which is eighteen miles distant from us; we shall return to-morrow.

Mr. Smith[65], whom I met at your house, lives about nine miles from here.

... I hope you recollect that we are not quite twenty-eight miles from Bath. You and Mrs. Malthus might, I think, give us the pleasure of your company for a few days during your Christmas vacation[66], and might at the same time visit your friends; but as you have seen them so lately you would give us great pleasure if you would give us the whole of your time. Mrs. Ricardo, who is standing by me, has made me express myself in a more than usually bungling manner. She unites with me in kind regards to Mrs. Malthus.

Yours very sincerely,
DAVID RICARDO.

XX.

GATCOMB PARK, _23rd Oct., 1814_.

MY DEAR SIR,

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

It does not appear to me that we very materially differ in our ideas of the effects of the facility or difficulty of procuring food on the profits of stock. You say that I 'seem to think that the state of production from the land compared with the means necessary to make it produce is almost the sole cause which regulates the profit of stock and the means of advantageously employing capital.' This is a correct statement of my opinion, and not, as you have said in another part of your letter and which essentially differs from it, 'that it is the _quantity_ of produce compared with the expense of production that determines profits.' You, instead of allowing the facility of obtaining food to be almost the sole cause of high profits, think it may be safely said to be the main cause, and also a difficulty of acquiring food the main cause of low profits. There appears to me to be very little difference in these statements. You infer that my doctrine is not correct because improvements may take place in agriculture or manufactures, because new leases may not be granted precisely at the time of the rise in the price of raw produce, and because the price of labour may not rise without delay in the same proportion. But improvements in agriculture or in machinery which shall facilitate or augment production will according to my proposition increase profits because 'it will augment production compared with the means necessary to that production.' The same may be said of the wages of labour not rising in the same proportion as the price of produce. As for old leases affecting the question, you will observe that in calculating the profits made by agriculture we must estimate leases at the value which they bear at the time of the calculation and not at the value agreed upon at an antecedent period. If the question were concerning the profits of a manufactory or distillery for example, we should calculate such profits according to the then value of barley, although a few individual distillers might have been so fortunate as to purchase their barley when it was 25 per cent cheaper. These points then are expressly allowed for in my proposition, and are by no means at variance with it. You add to your statement [']that in the interval between the two extremes (of high profits and low profits caused by facility or difficulty of procuring food) considerable variations may take place, and that practically no country was ever in such a state as not to admit of increase of profits on the land for a period of some duration, from the advanced price of raw produce.' I agree that variations will take place because the means of obtaining produce are not always equally expensive; and, if they should be, the produce itself may become more valuable, and in either case profits will vary. But even during these temporary variations the great cause, namely the accumulation of capital, may be paving the way for permanently diminished profits. It appears to me important to ascertain what the causes are which may occasion a rise in the price of raw produce, because the effects of a rise, on profits, may be diametrically opposite. A rise in the price of raw produce may be occasioned by a gradual accumulation of capital, which by creating new demands for labour may give a stimulus to population and consequently promote the cultivation or improvement of inferior lands; but this will not cause profits to rise but to fall, because not only will the rate of wages rise, but more labourers will be employed without affording a proportional return of raw produce. The whole value of the wages paid will be greater compared with the whole value of the raw produce obtained. A rise of raw produce may proceed from one or more bad seasons, which will undoubtedly increase profits because the price of produce would rise considerably more than in the proportion of the deficient quantity, and would therefore be much ahead of the price [_sic_] of production. An advanced price of raw produce may also proceed from a fall in the value of currency, which would raise the price of produce, for a time, more than it would wages, and would therefore raise profits. Both these you will allow are temporary causes, no way affecting the principle itself but merely disturbing it in its progress. Restrictions on importation of raw produce may cause a rise in its price which will be permanent or temporary according as the bad policy which dictated the restrictive law may be permanent or temporary. In the first instance profits will be raised; but they will ultimately fall below their former level. From what I have said it will appear that I am of opinion that a permanent rise in the rate of profits on land is never preceded by a rise but by a fall in the price of raw produce; and, though profits may be raised by a rise of the price of produce, they will generally ultimately settle at a rate lower than that from which they started. The converse of this, as it regards low prices of produce, I hold to be equally true. I should be glad to have your sentiments on this point. There may be other causes of high price, which do not at present occur to me.

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

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

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

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

Yours truly,
DAVID RICARDO.

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

XXI.

GATCOMB PARK, _18 Dec., 1814_.

MY DEAR SIR,

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

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

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

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

M. Say, in the new edition of his book, p. 99, vol. i, supports, I think, the very [same] doctrine that demand is regulated by production. Demand [is] always an exchange of one commodity for another. The shoemaker when he exchanges his shoes for bread has an effective demand for bread, as well as the baker has an effective demand for shoes,--and, although it is clear that the shoemaker's demand for bread must be limited by his wants, yet whilst he has shoes to offer in exchange he will have an effective demand for other things,--and if his shoes are not in demand it shows that he has not been governed by the just principles of trade, and that he has not used his capital and his labour in the manufacture of the commodity required by the society,--more caution will enable him to correct his error in his future production. Accumulation necessarily increases production and as necessarily increases consumption. Accumulation of _produce_, if properly selected, _may_ always be accumulation of _capital_, and it cannot fail to be worth more than it cost, estimated in corn or labour,--and this I think would be true although all our soldiers, sailors, and menial servants were employed in productive labour. It appears to me that the consideration of money value may be the foundation of our difference on this point.

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

I am, ever yours truly,
DAVID RICARDO.

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

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

XXII.[71]

GATCOMB PARK, _13 Jan., 1815_.

MY DEAR SIR,

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

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

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

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

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

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

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

Truly yours,
DAVID RICARDO.

XXIII.

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

MY DEAR SIR,

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

I cannot, however, help regretting that you did not consider separately the relations of rent with the profits of stock and the wages of labour. By treating of the joint effect of the two latter on rent you have, I think, not made the subject so clear as it might have been made.

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

Viewing rents in this light, it follows that I must withdraw the concession which I was inclined to make when you first started the question 'whether, in importing corn at a cheaper price than we could grow it, the whole difference of price was saved, or whether some abatement should not be made from the advantage for the loss of rent?' as I now decide[d]ly think that the whole difference of price would be gained without any deduction whatever. The arguments then of those who contend for a free trade in corn remain in their original full force, as rents are always withdrawn from the profits of stock. I will try, if I have a little leisure, to put my thoughts on this subject on paper, and shall attempt to show that the effects of a tax and of rent are very different as far as regards importation. It may be economical to grow corn if its price is raised merely by taxation, as by importing it a part of the tax would be wholly lost to the country [import]ing it. No such consideration should influence us [with regar]d to rent being lost.

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

... I have paid Wettenhall L2 8_s._ for two years' lists, but it has since occurred to me that I paid him and you paid me for one year, and therefore that only one year can be due to him. If so, let me know, that I may get back L1 4_s._

Ever yours,
DAVID RICARDO.

XXIV.

_10th Feb., 1815._

MY DEAR SIR,

I shall accept your kind invitation, and intend being with you on Saturday evening at the usual time. We can then talk over the points on which we differ. I will bring with me the papers on which I have been busy since you left London, and in which my objections are more fully stated than can be done in the compass of a letter[76].

In the case of the Scotch farmers who made such large profits on their capital during the latter part of their leases[77], they appear to me to have been enjoying rent, arising not from improvements in agriculture, but from poorer land being taken into cultivation. If their leases had expired sooner, rent would have been increased long before on those farmers. It would be desirable to know what the rent on those farms was when the lease was originally granted, or rather what proportion it bore to the capital then employed and what the proportion of rent is to the capital now employed.

The effects of monopoly cannot, I think, be felt till no more land can be advantageously cultivated. You have yourself said, and I very much admire the passage[78], that the last portion of capital employed on the land yields only the common profits of stock, and does not afford any rent. If so, corn, like everything else, is regulated in its price by the cost of production, and every other portion of capital employed on the land is reduced to the same level of profits only because no more capital can be employed with more advantage, and all which it anywhere yields more is rent and not profit.

I have read the Appendix[79] also with great attention, and cannot help thinking that you have quite thrown off the character of impartiality to which, in the Observations, I thought you fairly entitled. You are avowedly for restrictions on importation; of that I do not complain. It is not easy to estimate justly the dangers to which we may be exposed. Those who are for an open trade in corn may underrate them, and it is possible that you may overrate them. It is a most difficult point to calculate these dangers at their fair value; but in an economical view, although you have here and there allowed that we might be benefited by importing cheap rather than by growing dear, you point out many inconveniences which we should suffer from the loss of agricultural capital and from other causes, which would make it appear as if even economically you thought we ought to import corn,--such is the approbation with which you quote from Adam Smith of [_sic_] the benefits of agriculture over commerce in increasing production[80], and which I cannot help thinking is at variance with all your general doctrines.

Your observations on the advantages (and therefore on the injustice to other classes) which the stockholder would reap from a low price of corn are, I think, very correct; but I do not think these objections should stand in the way of the general good. They, the stockholders, have at different periods suffered much, and, if the sinking fund be now appropriated to other services[81], another striking injustice will be added to the long list. I meant to write only a few lines and have filled a long letter....

Yours very truly,
DAVID RICARDO.

XXV.

LONDON, _9th March, 1815_.

MY DEAR SIR,

My acquaintance lies so little amongst political economists that I have very few opportunities of knowing whether what you consider as my peculiar opinions have any supporters, or indeed are read or attended to. As for my own judgment on the subject, it is perhaps too partial to merit attention; but after my best efforts not to be biassed in favour of my own opinions, I continue to think them correct.

I would indeed rather modify what I said concerning the stationary state of the prices of commodities under all the variations of the price of corn, either from wealth on the one hand or the importation from foreign countries or improvements in agriculture on the other. I made no allowance for the altered value of the raw material in all manufactured goods[82]. They would, I think, be subject to a variation in price not on account of increased or diminished wages, but on account of the rise or fall in the price of the raw produce which enters into their composition, and which in some commodities cannot be inconsiderable. It is a matter of mortification to me that my execution has been so faulty; I was too much in a hurry, and have not made my meaning intelligible even to those who are familiar with such subjects, much less to those who skim over these matters.

Since I have seen you I received a note from Mr. Edward West, who is the author writing under the title of a Fellow of University College; he speaks in favour of my opinions of course, because they are very similar to his own. I have read his book with attention, and I find that his views agree very much with my own. He is a barrister, a young man, and appears very fond of the study of political economy. Mr. Brougham has, I think he said, promised to introduce him to you. Mr. Jacob[83] has handled both him and me rather roughly; but he will not condescend to argue with us. I shall be very easy if he is the most formidable opponent that is to attack me, for he seems totally ignorant of the scientific part of the subject.