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.

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 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 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 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).

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 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 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 of capital, which has been prevented from showing itself in a low rate of interest by new facilities in the production of food. I quite agree that an increased value of particular commodities occasioned by demand has a tendency to occasion an increased circulation, but always in consequence of the cheapness of some other commodities. It is therefore their cheapness which is the immediate cause of the introduction of additional money.

I have not been home since I received your letter. I will look at the passage you refer me to in Adam Smith[38], and will consider of the other matters in your letter, so as to be prepared to give you my theory when we meet.

The facts you have extracted from Wetenhall's tables are curious[39], and are hardly reconcileable to any theory. I attribute many of them to the state of confusion into which Europe has been plunged by the extent and nature of the war; and it would be quite impossible to reason correctly from them without calculating what the state was of the real as well as the computed exchange during the periods referred to. Pray make my best respects to Mrs. Malthus, and believe me,

Truly yours,
David Ricardo.

VI.

Dear Sir,

I lose no time in answering your obliging letter and endeavouring as far as lies in my power to remove the very few objections which prevent us from being precisely of the same opinion on the subject of money and the laws which regulate its value in the countries which have constant commercial intercourse with each other. I have no view in this discussion but that which you have avowed, the circulation of truth; if therefore I should fail to convince you, and you should express your opinions in print, it is immaterial to me whether you mention my name or not. I trust you will do that which shall most fully tend to establish the just principles of the science.

There does not appear to me to be any substantial difference between bullion and any other commodity as far as regards the regulation of its value and the laws which determine its exportation or importation. It is true that bullion, besides being a commodity useful in the arts, has been adopted universally as a measure of value and a medium of exchange; but it has not on that account been taken out of the list of commodities. A new use has been found for a particular article; consequently there has been an increased demand for it and an augmented supply. This new use has made every man a dealer in bullion; he buys it to sell it again, and the general competition of all these dealers will as surely, and as strictly, regulate its value in every country, as the competition of the same or other dealers will regulate the value of all other commodities. I have your sanction for calling every purchaser of commodities a dealer in bullion; and, though in the language of commercial men the sellers of money are in all cases called purchasers, it is not on that account less true that they are sellers of one commodity and purchasers of another. The nature of corn was not changed by the discovery that a new use might be made of it by fermentation and distillation; and, if we should hereafter discover that it might be used for a hundred other purposes, contributing to the comforts and enjoyments of mankind, the demand for it would increase, and its price would in the first instance be considerably augmented; but this would be the only change it would undergo; it would continue to be imported and exported by the same rules as every other commodity. I have no doubt that on this point we should not differ; it remains therefore for you to show why the new uses, to which gold has been applied in consequence of its being adopted as the money of the world, should exempt it from the general law of competition, and why it should not certainly and invariably (invariably only as that term is applied to other commodities) seek the most advantageous market.

It is probable that the word 'redundancy' has not been happily chosen by me to express the impression made on my mind of the cause of an unfavourable balance of trade; but on looking over the article in the Review[40] I find that you use it precisely in the sense in which I wish to convey my meaning, for you admit that a relatively redundant currency may be, and frequently is, a cause of an unfavourable balance of trade; but you contend that it is not the only cause. Now I, so understanding the word, contend that it is the invariable cause. This relative redundancy may be produced as well by diminution of goods as by an actual increase of money (or which is the same thing by an increased economy in the use of it) in one country; or by an increased quantity of goods or by a diminished amount of money in another. In either of these cases a redundancy of money is produced as effectually as if the mines had become more productive. I do not deny that temporary fluctuations do occur in the value of the precious metals; on the contrary I maintain that those fluctuations never cease; but I attribute them all to one cause, namely a redundancy of the currency produced in one of the ways above mentioned, and not to the demand for particular commodities. These demands are in my opinion regulated by the relative state of the currency; they are not causes but effects. You appear to me not sufficiently to consider the circumstances [which] induce one country to contract a debt to another. [In] all the cases you bring forward you always suppose the [deb]t already contracted, forgetting that I uniformly contend that it is the relative state of the currency which is the motive to the contract itself. The corn, I say, will not be bought unless money be relatively redundant; you answer me by supposing it already bought and the question to be only concerning the payment. A merchant will not contract a debt for corn to a foreign country unless he is fully convinced that he shall obtain for that corn more money than he contracts to pay for it, and, if the commerce of the two countries were limited to these transactions, it would as satisfactorily prove to me that money was redundant in one country as that corn was redundant in the other. It would prove too that nothing but money was redundant. If indeed sugar were exported by some other merchant, the debt for corn would be paid without the exportation of money, and I should say that sugar was the redundant commodity; and the exportation of sugar, the more redundant commodity, by diminishing the aggregate amount of commodities, would raise the value of money, so that in a short time money would, if corn continued to be imported and sugar exported, no longer be redundant even as compared with corn. Your observation is just, concerning the extra expenses attending the exportation of bulky commodities; but in all these discussions we must suppose these expenses to make part of the price of the commodity; our comparison is made on the prices at which the importer could afford to sell them, and those prices necessarily include expenses of every sort. I do not think that the knowledge of the computed exchange of Jamaica would throw any light on the subject in dispute[41]. I will, however, endeavour to learn every particular concerning it, and hope to be able on Saturday next to pay you a visit in Hertfordshire, when we will further discuss these seeming difficulties.

I am, dear Sir, with great respect,
Your obedient Servant,
David Ricardo.

Throgmorton Street, 18th June, 1811.

VII.[42]

Dear Sir,

I have been so much engaged since I had the pleasure of receiving your letter that I have not had an opportunity of answering it till this evening.

The information which you are desirous of obtaining respecting the premium on bills in Jamaica from the year 1808 to the present period, I will endeavour to procure, but, as these transactions all take place in Jamaica, and as the merchants here are frequently not acquainted with the prices at which the bills remitted to them are negociated, I am not sure that I shall be successful.

I very much regret that there is so little probability of our finally agreeing on the subject which has lately engaged our attention. The definition which you give of the word 'redundant,' as applied to the currency, is not satisfactory to me. Though it should be allowed that the rise in the price of one commodity, in the case of a scarcity of corn, should be accompanied with a fall in the prices of all others, why should a redundancy of currency be impossible under such circumstances? The currency must, I apprehend, be considered as a whole, and as such must be compared with the whole of the commodities which it circulates. If then it be in a greater proportion to commodities after than before the scarce harvest, whilst no such alteration has taken place in the proportions between money and commodities abroad, it appears to me that no expression can more correctly describe such a state of things than a 'relative redundancy of currency.' Under these circumstances not only money but every other commodity would become comparatively cheap as compared with corn, and would therefore be exported in return for the corn which would be in demand in this country. By relative redundance then I mean, relative cheapness, and the exportation of the commodity I deem, in all ordinary cases, the proof of such cheapness. Indeed, from one who allows that the amount of money employed in any country is regulated by its value, and might therefore be comparatively redundant though it consisted only of a million, or deficient though it amounted to a hundred millions, I should not have expected any difference of opinion on the comparative cheapness of money being the only satisfactory proof of its redundance. If however I thought that the difference between us was as to the correct use of a word, I should immediately yield the point in dispute, but I am persuaded that we do not agree in the principle. You are of opinion that a bad harvest will raise the price of corn, but will lower in some degree the prices of other commodities. Whether it would or would not do so is not material; but, if your opinion is correct, then I say there would be no exportation of money, because money would not be the cheapest exportable commodity. If, before the deficient harvest, money was at the same value in any two countries, that is to say all their exportable commodities without exception were at the same prices in both, then, according to your view of the question, after the scarcity the prices of all commodities would fall in the country where such scarcity occurred. Whilst then the prices were unequal in the two countries, commodities only would be exported in exchange for corn, and there would be no question between us, because we differ as to the cause of the exportation of money. You have indeed said that there may be a glut of commodities in the foreign market. What! a glut of commodities with a dearer price! impossible,—these two circumstances are incompatible. If the price of any commodity had been £20 in both countries and in consequence of the bad harvest it had been lowered to £15 in one of them, there could not be a glut of that commodity in the other country till it had there also fallen to £15. Not only must the price of one commodity fall in the foreign market, but the prices of all (because you suppose them all to have fallen in England) before money could be exported in exchange for corn, and then I would allow that money would be exported, but even then it would be so only because it was more cheap on the whole, as compared with commodities in the exporting country, and this I contend is the proof of its relative redundance. You maintain that money is rendered cheap by a bad harvest as compared with corn only, but with all other commodities it is dearer than before,—and then, what appears to me very inconsistent, you insist that this commodity thus rendered scarce and dear will be exported, though, before it had increased in value, it had no tendency to leave us, whilst too there are commodities which have undergone an opposite change, which from being dearer have become cheaper, and which will nevertheless be obstinately retained by us. This is a mode of reasoning which I cannot reconcile.

With respect to the other point, namely, that the exchange accurately measures the depreciation of the currency[43], I cannot but humbly retain that opinion notwithstanding the high authorities against me. I do not mean to contend that a convulsed state of the exchange, such as would be caused by a subsidy granted to a foreign power, would accurately measure the value of the currency, because a demand for bills arising from such a cause would not be in consequence of the natural commerce of the country. Such a demand would therefore have the effect of forcing the exports of commodities by means of the bounty which the exchange would afford. After the subsidy was paid the exchange would again accurately express the value of the currency. The same effects would follow, as in the case of a subsidy, from the foreign expenditure of Government. These have a natural tendency to create an unfavourable exchange, yet if the demand for bills is regular it is surprising how this bounty on exportation will be reduced by the competition amongst the exporters of commodities. I am of opinion that in the ordinary course of affairs, if, from any of the circumstances so often mentioned, there should be a slight alteration in the value of the currencies of any two countries, it will speedily be communicated to the exchange; and, if such a state of things should permanently continue, the exchange has no tendency to correct itself. The fact however appears to be that there is no degree of permanence in the proportions between the currencies and the commodities of nations,—they are subject to constant fluctuations always approaching an absolute level but never really finding it. I hope I have not wearied you with the defence which I have endeavoured to make for the opinions which I have imbibed. I assure you that I am not obstinately attached to any system, but am ready to relinquish any views I may have taken as soon as I am satisfied that they are incorrect. I shall not fail attentively to consider the chapters in Sir J. Steuart's work which you have mentioned[44]. I hope before the summer is over to pay you a visit at Hertford.

I am, dear Sir,
Yours very sincerely,
David Ricardo.

New Grove, Mile End, 17 July, 1811.

VIII.

Dear Sir,

I hoped long ere this to have had the pleasure of seeing you in London. I am anxious for an opportunity of introducing Mrs. Malthus and Mrs. Ricardo to each other, and I shall certainly claim the half promise which Mrs. Malthus made me on that subject when I experienced your hospitality at Hertford. We have few engagements, and have a bed always at your disposal, so that I shall hope on your very first visit to London you will favour me by occupying it.

A friend of mine has been writing on the subject of bullion. I take the liberty of sending you the MS[45]. If you could look over it and give me your opinion of it you will much oblige me. He would be induced to prepare it for the press if he thought that the mode in which the argument is put is more likely to silence our adversaries and convince those who are not our adversaries than the mode in which it has been put by any other person. Should you be so engaged that you cannot devote your attention to it at the present time, use no ceremony with me, but return the MS. by the coach, directed to me at No. 16 Throgmorton Street. With best respects to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
David Ricardo.

Stock Exchange, 17th Oct., 1811.

IX.

Throgmorton Street, 22nd Oct., 1811.

Dear Sir,

I am exceedingly obliged to you for the trouble which you have taken in looking over the papers which I sent you, and for the remarks which you have made upon them. Notwithstanding your flattering encouragement I think I shall not have sufficient confidence again to address the public;—the object which I had in view is completely attained,—the public attention has been awakened, and the discussion is now in the most able hands. I regret, however, that you cannot bring yourself to subscribe to my doctrine respecting the exchange being influenced by no other causes but by the relation which the amount of currency bears to the uses for which it is required in the different nations of the earth. This may proceed from your interpreting my proposition somewhat too rigidly. I wish to prove that if nations truly understood their own interest they would never export money from one country to another but on account of comparative redundancy. I assume indeed that nations in their commercial transactions are so alive to their advantage and profit, particularly in the present improved state of the division of employments and abundance of capital, that in point of fact money never does move but when it is advantageous both to the country which sends and the country that receives that it should do so. The first point to be considered is, what is the interest of countries in the case supposed? The second what is their practice? Now it is obvious that I need not be greatly solicitous about this latter point; it is sufficient for my purpose if I can clearly demonstrate that the interest of the public is as I have stated it[46]. It would be no answer to me to say that men were ignorant of the best and cheapest mode of conducting their business and paying their debts, because that is a question of fact not of science, and might be urged against almost every proposition in Political Economy. It rests with you therefore to prove that a case can exist where it may become the interest of a nation to pay a debt by the transmission of money rather than in any other mode, when money is not the cheapest exportable commodity,—when money (taking into account all expenses which may attend the exportation of different commodities as well as money) will not purchase more goods abroad than it will at home. You appear to me to have repeatedly admitted that it is the relative prices of commodities which regulates their exportation. Is it not then as certain that money will go to that country where the major part of goods are cheap, as that goods will go to any other country where the major part are dear? I say the major part, because if the cheapness of one half of the exportable commodities be balanced by the dearness of the other half, in both countries, it is obvious that the commerce of such countries will be confined to the exchange of goods only. When you say that money will go abroad to pay a debt or a subsidy, or to buy corn, although it be not superabundant, but at the same time admit that [it] will speedily return and be exchanged for goods, you ap[pear to me] to concede all for which I contend, namely, that [it will] be the interest of both countries, when money is not superabundant in the one owing the debt, that the expense of exporting the money should be spared, because it will be followed by another useless expense,—sending it back again.

If in any country there exists a dearness of importable commodities and no corresponding cheapness of exportable commodities, money in such country is above its natural level and must infallibly be exported in payment of the dear commodities,—but what does this state of things indicate but an excess of currency, and it may surely be correctly said that money is exported to restore the level not to destroy it. I ought to apologise for again troubling you with my opinions, but you have drawn me into it. I shall be happy to renew our conversation on these disputed points as soon as you can make it convenient to visit us in London, and I trust it will not be long before Mrs. Malthus and you will favour us with your company. On some future day I shall have great pleasure in again visiting you at Hertford.

I am, dear Sir,
Yours very truly,
David Ricardo.

X.

New Grove, Mile End, 22nd Dec., 1811.

My dear Sir,

I write to you, in the first place, to remind you that Mrs. Ricardo and I fully depend on having the pleasure of Mrs. Malthus' and your company at Mile-end in the next month, when we hope that our endeavours to make your visit comfortable will induce you to make a long stay with us. In the second place, I am desirous of correcting some of the errors in the papers which I left with you and which I have been enabled to discover, as I have many others, by the ingenious arguments with which you have opposed my conclusions. In my endeavours to trace the effects of a subsidy[47] in forcing the exportation of commodities, I stated, if I recollect rightly, that it would occasion, first, a demand for bills; secondly, an exportation of all those commodities the prices of which already differed so much, in the two countries, as to require only the trifling stimulus which the first fall in the exchange would afford; thirdly, a real alteration in the relative state of prices, viz. a rise in the exporting and a fall in the importing country,—in a degree too to counterbalance the advantage from the unfavourable exchange; and lastly, a further fall of the exchange and a consequent exportation of an additional quantity of goods and then of money till the subsidy were paid. It appears, then, that if the subsidy were small it would be wholly paid by the exportation of commodities, as the fall in the exchange would be sufficient to encourage their exportation, but not sufficient to encourage the exportation of money. If the exportation of money were in the same proportion as the exportation of commodities, that is to say, supposing the commodities of a country to be equal to 100, and its money equal to two, then if not less than one fiftieth of the exports in payment of the subsidy consisted of money, prices would after such payment be the same as before in both countries, and, although the exchange must have fallen to that limit at which the exportation of money became profitable, it would immediately have a tendency to recover, and would shortly rise to par; but it is precisely because less than this proportion of money will be exported that the exchange will continue permanently unfavourable and will have no tendency to rise, more than it will have to fall.

I believe you admit, that in the case of an augmentation of 2 per cent. to our currency, although it were wholly metallic, the prices of commodities would rise in this country 2 per cent. above their former level, and that such rise being confined to this country alone it would check exportation and encourage importation; the consequence of which would be a demand for bills and a fall in the exchange. This rise of prices and fall of the exchange, proceeding from what you do not object to call a redundant currency, would not be temporary but permanent, unless it were corrected by a reduction of the amount of the currency here, or by some change in the relative amount of the currencies of other countries. That these would be the effects of a direct augmentation of currency, I believe, you, with very few qualifications, admit. Now, as a bad harvest or the vote of a subsidy tend [sic] to produce the very same effects, namely, a relative state of high prices at home, accompanied by an unfavourable exchange, they admit only of the same cure,—and, as in the case of an augmentation of currency the exchange would have no tendency to rise, neither would it in the case of a subsidy, the unfavourable exchange being in both instances produced by a redundant currency, or in more popular language by a relative state of prices which renders the exportation of money most profitable[48]. I have uniformly maintained that the money of the world is distributed amongst the different countries according to their commerce and payments, and that, if in any country it should from any cause happen to exceed that proportion, the excess would infallibly be exported to be divided amongst the other countries. I have, however, always supposed that my readers would understand me to mean that this would be strictly the fact only if money could be exported free from all expense. If the expenses of exporting money to France be 3 per cent., to Vienna 5 per cent., to Russia 6 per cent., and to the East Indies 8 per cent., the currency of England may exceed its natural level as compared with those countries by 3, 5, 6, and 8 per cent. respectively, and consequently the exchange may permanently continue depressed in th[ose pr]oportions. If an excess of currency once occurs, [the unfa]vourable exchange must continue till some alterati[on in] the relative amount of currency. The circumstances which [may] occasion such an alteration are numerous, and are fully detailed in the papers which I left with you. To the precise agreement between the effects of an augmented currency and the effects of a subsidy I most particularly request your attention, as on such agreement depends the whole success of the argument which I am advancing in favour of my opinion that an unfavourable exchange has no tendency to correct itself. It may be urged that the relative state of high prices at home occasioned by an augmentation of currency is the natural effect of such a cause, but that this is not the case in a subsidy; that the exportation of commodities in payment of a subsidy is forced, and that it will produce a glut in the foreign market, but that after the subsidy is paid and the necessity for exportation shall cease prices will rise in the foreign market to their former rate. This however will not be true. Commodities may rise in a trifling degree abroad, but cannot regain their former rate unless the exchange should also rise to par, but this it can never do whilst the demand for bills do[es] not exceed the supply. Now, as the prices of foreign commodities in the home market, which could not have been supplied in the usual abundance during the operation of the subsidy when we had a large balance to pay, would fall, and would be in greater demand from the moment that our commodities would be received in exchange, the exportation of our goods would be balanced by the importation of foreign goods, and the sellers of bills would neither exceed nor fall short of the purchasers. These are the substance of the amendments which I wish to make to my paper, which is now so faulty that I shall be glad to have it returned to me. Have the goodness to bring it with you when you come to town.

I am, my dear Sir,
Yours with great esteem,
David Ricardo.

XI[49].

London, 29th, August, 1812.

My dear Sir,

I intend leaving town this evening for Ramsgate, where I think I shall stay about a fortnight, so that I cannot accept your kind invitation for Saturday next; but I hope it will not be long before I bend my steps towards your hospitable roof. If on Saturday the 19th of September you should be quite disengaged and it should be every way convenient to you and Mrs. Malthus, I shall be glad to take tea with you on the evening of that day. I shall be obliged to quit you on the Monday morning. I hope I need not say that I shall be exceedingly sorry if I put you to the least inconvenience and that it will be equally agreeable to me to visit you on any Saturday after the 19th if I am not engaged to go to Ramsgate.

Perhaps you will be so good as to write a few lines directed to the Stock Exchange a few days previously to the 19th as I shall certainly be in town at that time. I am obliged to you for the interest you take in the price of Omnium. It appears to be in a very thriving condition. Mr. Goldsmid[50] informs me that at the period of the improvement in the exchange about Christmas last there were no importations, as far as he knows, of gold from France. A small quantity was imported from Lisbon. I have consulted Wetenhall's list[51], and the following appear to be the variations in the exchange and the price of gold about Christmas last.

The price of dollars yesterday was 6/3½ per oz., higher by one penny than any price ever yet quoted. I should think that a very trifling rise more will send the tokens out of circulation. We will speak on our old subject when we meet. I am now in great haste and must therefore conclude. Pray make my kind compliments to Mrs. Malthus,

And believe me, my dear Sir,
Yours very truly,
David Ricardo.

[At the end is written in pencil in Malthus's handwriting, 'Was any bullion imported from Hamburg in March?']

XII.

London, 17 Dec., 1812.

My dear Sir,

I have written to Mr. Thornton[52] to request him to meet you at dinner, at my house, on any day most convenient to him, after Saturday and before Thursday, but I have not had his answer in time for this day's post. I will send you a line at the King of Clubs. I shall only ask Mr. Sharp to meet us. Will you not stay with us whilst you are in town? I assure you it would be quite convenient, and it would afford me great pleasure. If Mrs. Malthus accompany you it will be still more agreeable, and I am desired by Mrs. Ricardo to add her solicitations to my own.

On many points connected with our old question we are I believe agreed,—though there is yet some difference between us. I have not lately given it so much consideration as you have,—and I always regret that I do not put down in writing, for I have a very treacherous memory, the chief points of difference that occur in our discussions. I cannot help thinking that there is no unfavourable exchange which may not be corrected by a diminution in the amount of the currency, and I consider this to afford a proof that the currency must be redundant for a time at least. Whilst the exchange is unfavourable it is always accompanied, though not always caused, by an excess of currency. With best respects to Mrs. Malthus,

I am, my dear Sir,
Yours most truly,
David Ricardo.

... As I was about leaving the city I received Mr. Thornton's answer. He is engaged on Wednesday and Thursday, and has fixed on Monday for our meeting, but he wishes us to meet at his house as there is to be a debate in the House of Lords on the Bullion question, and he is not sure that his presence may not be necessary in the Commons. I will settle this point with him, and if you do not hear from me I shall expect you at my house on Monday, if you do not agree to come on Saturday evening.

Note.—Thomas Tooke, in his 'History of Prices and of the State of the Circulation from 1839 to 1847' (publ. 1848)[53], refers to this dispute between Ricardo and Malthus, on the relation of the currency to the balance of trade, and quotes long extracts from the article of Malthus in the Edinburgh Review, where (as in this correspondence[54]) Malthus maintains that the precious metals are continually used in payments made by one country to another even if, till that moment, the currencies of both have been at their usual level. The view of Ricardo is that nothing but the state of the currency can influence the foreign exchanges. As late as 1840 statesmen clung to the idea that the Directors of the Bank of England could only operate on the exchanges by increasing or diminishing the circulation[55]. Tooke (followed later by Newmarch, hardly a less authority) sides with Malthus, and thinks that Ricardo's reply to him, in the Appendix to the Tract on Bullion, is 'little more than a repetition in varied forms of expression, according to the phraseology peculiar to the theory in question, of the axiom that gold will not be exported unless it is cheaper than another commodity, assuming consequently the fact to have been that all commodities were at that time dearer in this country than they were abroad, and relatively to gold;'—whereas it appears[56] that between 1809 and 1811 the bulk of commodities were at a far higher price (measured in gold) on the Continent than in England; the 'continental system' had forced vast stores of goods to lie unsaleable in England for want of physical ability, on the part of the merchants of them, to land them on the Continent, though they did their best to smuggle them by way of Heligoland or Turkey into Germany and the door of Portugal was ajar. Coffee was unsaleable in England at 6d. the pound, and at the same time it was fetching 4s. or 5s. on the Continent. Napoleon used to look at the English price current, and, if he found gold dear and coffee cheap in England, he was satisfied that his Berlin and Milan decrees were well carried out, while the English saw only another proof that the Bank was extending its issues overmuch. Tooke and Malthus agreed that the difference between the market price and the mint price of gold bullion was the full measure of the depreciation of the currency; but the 'ultra-bullionists' would not stop there. Tooke, like Ricardo on another occasion (see Letter XLII), had to 'write a book to convince' them, namely his 'Thoughts and Details on the High and Low Prices of the last Thirty years,' (1823).

XIII.

London, 30th Dec., 1813.

My dear Sir,

I have been amusing myself for one or two evenings in calculating the exchanges, price of gold, etc., at Amsterdam, and I enclose the result of my labour. I have every reason to believe that my calculations are correct,—though I am somewhat puzzled at the profit which there appears to be on the importation of gold from Amsterdam, if the prices there be quoted correct [sic]. If the difference were the other way, we might ascribe it to the money of Holland not being so good as it ought to be by the mint regulations; but in the present instance for guilders, as good as they are coined, gold can be bought 9½ per cent. cheaper than in London. I am told that gold which cannot be exported has sunk considerably in price although gold that may be exported keeps its price. I fully expect that foreign gold will be lower.

We have had a continuance of foggy weather ever since Monday. We are obliged to burn candles during the day, and at night it is with the greatest difficulty we can find our way to our homes. I hope you are more fortunate and breathe a clearer atmosphere. We shall expect you in Brook Street on your next visit to London. Have the goodness to write the day before you come. With best wishes to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
David Ricardo.

[TABLES ENCLOSED IN LETTER XII.]

Columns 11 and 12 will show on inspection whether silver be passing from London to Amsterdam or from Amsterdam to London. Suppose the price of silver in London to be 6s. 7d. and the exchange with Amsterdam 28s. Against 6s. 7d. in column 11 the par of exchange is 29·41 in column 12; consequently being at 28 it is unfavourable to Amsterdam, and silver can be exported from Amsterdam to London with a profit of 5 per cent. If under the same circumstances the exchange had been 31, silver could have been exported to Amsterdam with a profit of 5 per cent.

Columns 8, 9 and 10 will show from which country gold may be profitably exported. Suppose the price of gold in Amsterdam to be 16 per cent. premium, the agio 3 per cent., the exchange with London 31, and the price of gold in London £5 10s., from which country would gold be exported and with what profit?

Against 16 per cent. in column 1 the par of exchange in column 8 is 39·64, and against £5 10s. the price of gold in London in column 9 the multiplier ·708 stands in column 10. 39·64 multiplied by ·708 gives 28·06 as the par for bank notes; therefore, when the exchange is at 31, it is unfavourable to Holland, and gold may be exported from thence with a profit of 10½ per cent. nearly. Or thus: an oz. of standard gold, when the marc could be bought at 16 per cent. premium at Amsterdam, would cost 154·3 Flemish shillings banco, when the agio was 3 per cent., which reduced into English money at 31 [Flemish] shillings per £ sterling will give £4 19s. 6¾d. But it will sell in London for £5 10s. which is a profit of 10½ per cent. nearly.

XIV.

London, 1 Jan., 1814.

My dear Sir,

Having finished a table for the Hamburgh exchanges, similar to that which I have already sent you for Holland, I thought you might like to have a copy of it[59]. In this as well as in the other the result is not quite satisfactory; for example, at the present time I believe the exchange with Hamburgh is quoted 28s. and the price of dollars 6s. 11½d. By the table it appears that with [such] a price of dollars the exchange at par would be 25s.; consequently it is now unfavourable to Hamburgh 12 per cent., which appears to me to be excessively high. In fact, under the present circumstances, there can be no intercourse with Hamburgh, and the quotation must be only nominal. Mrs. Ricardo and I leave London to-morrow early for Bradford; from thence we intend going to Gatcomb[60], and expect to be in town again on Thursday. I hope we shall soon see you. With best wishes to Mrs. Malthus,

I am, dear Sir,
Yours very truly,
David Ricardo.

N.B.—3 marks are equal to 8 Flemish shillings banco. When dollars are 4s. 11½d., standard is 2½d. more. When 6s. 1d., 3d. more. When 7s., 3½d. more.

XV.

[Addressed to Penr[h]yn Arms, Bangor, North Wales.]

London, 26 June, 1814.

My dear Sir,

... I cannot partake of your doubts respecting the effects of restrictions on the importation of corn in tending to lower the rate of interest. The rise of the price or rather the value of corn without any augmentation of capital must necessarily diminish the demand for other things even if the prices of those commodities did not rise with the price of corn, which they would (tho' slowly) certainly do. With the same capital there would be less production and less demand. Demand has no other limits but the want of power of paying for the commodities demanded. Everything which tends to diminish production tends to diminish this power. The rate of profits and of interest must depend on the proportion of production to the consumption necessary to such production,—this again essentially depends upon the cheapness of provisions, which is after all, whatever intervals we may be willing to allow, the great regulator of the wages of labour. Nothing can tend more effectually to diminish the demand abroad for our manufactures than to refuse to import corn and other commodities which we [had] usually taken in exchange for such manufactures. If we rigorously refused to import any [foreign] commodity whatever, I firmly believe that we should soon cease to export any commodity, even if we made gold an exception to the general rule. Our money would stand at a higher level than in other countries, but there are limits beyond which it could not go. All trade is at last a trade of barter, and no nation will long buy unless it can also sell,—nor will it long sell if it will not also buy. If by adopting such policy [sic] a country were to enhance the value of the raw materials which it consumed, of which corn is the principal, it would thereby lower the rate of interest. If otherwise, it might be deprived of many luxuries and many comforts, or might enjoy them in less abundance, but the rate of interest would not fall. This is a repetition, you will say, of the old story, and I might have spared you the trouble of reading at 200 miles distance what I had so often stated to you as my opinion before; but you have set me off, and must now abide the consequences. I never was more convinced of any proposition in Political Economy than that restrictions on importation of corn in an importing country have a tendency to lower profits. Remember me kindly to Mrs. Malthus.

Yours very truly,
David Ricardo.

XVI.

Gatcomb Park, near Minchin Hampton, Gloucestershire,
25th July, 1814.

My dear Sir,

I am writing to you from Gatcomb, where I arrived with S—— as my companion yesterday afternoon. To enable me to quit London at the time I did I was obliged to bestow an unusual degree of attention to business of all sorts, and, though I had written a letter to you in answer to your last before I left Brook Street, I was so dissatisfied with it that I could not resolve to send it. I shall, I fear, succeed no better now, but you shall have it whatever it may be, as, if I defer writing any longer, you may have quitted Bangor before my letter arrives there[61]. It appears to me that you have changed the proposition on which we first appeared to differ. The proposition advanced by you, if I recollect right, was that restrictions on the importation of corn would not lower the rate of profits and interest, but now you add—or rather your argument leads to that conclusion,—'if the consequence of such restriction be a great reduction of capital.' So amended I should not object to the proposition,—but I think it material that causes should be kept distinct, and their due effects ascribed to each. Restrictions on the trade of corn, if capital suffers no diminution, will occasion a fall in the rate of profits and interest. A reduction of capital independently of restrictions on importation of corn will have a tendency to raise profits and interest,—but there is no necessary connection between these two operating causes, as they may at the same time be acting together or entirely in opposite directions. Effective demand, it appears to me, cannot augment or long continue stationary with a diminishing capital; and your question why if this were true profits rise at the commencement of a war? does not, I think, bear any connection with the argument, because profits will augment under a diminution of capital and produce, if demand though diminished does not diminish so rapidly as capital and produce. For the opposite reason profits will diminish when capital and produce increase. This is totally independent of the rate of production, and often, I think, may counteract the effects which usually follow, and in the long run will almost always follow, from increasing or diminishing capital. You say that 'the proportion of production to the consumption necessary to such production seems to be determined by the quantity of accumulated capital compared with the demand for the products of capital, and not by the mere difficulty and expense of procuring corn.' It appears to me that the difficulty and expense[62] of procuring corn will necessarily regulate the demand for the products of capital, for the demand must essentially depend on the price at which they can be afforded, and the prices of all commodities must increase if the price of corn be increased. The capitalist 'who may find it necessary to employ a hundred days' labour instead of fifty in order to produce a certain quantity of corn' cannot retain the same share for himself unless the labourers who are employed for a hundred days will be satisfied with the same quantity of corn for their subsistence that the labourers employed for fifty had before. If you suppose the price of corn doubled, the capital to be employed, estimated in money, will probably be also nearly doubled,—or at any rate will be greatly augmented; and, if his monied income is to arise from the sale of the corn which remains to him after defraying the charges of production, how is it possible to conceive that the rate of his profits will not be diminished? I hope you continue to enjoy yourself amidst the wild scenery with which you are encompassed.—The weather here is delightful, and I am as happy as I can be, separated from the whole family (except S——) and surrounded by upholsterers, carpenters, etc....

Yours very truly,
David Ricardo.

I believe that in this sweet place I shall not sigh after the Stock Exchange and its enjoyments.

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 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 Économie 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 tête à tête with Ricardo. He would borrow a sixpenny book instead of buying it. There was an épanchement 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 Encyclopædia 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.]