55.: ricardo to malthus3[Reply to 54.—Answered by 56] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 6 Letters 1810-1815 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 6 Letters 1810-1815.
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First published by Cambridge University Press in 1951. Copyright 1951, 1952, 1955, 1973 by the Royal Economic Society. This edition of The Works and Correspondence of David Ricardo is published by Liberty Fund, Inc., under license from the Royal Economic Society.
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ricardo to malthus
[Reply to 54.—Answered by 56]
Gatcomb Park 11th. Augt. 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 shewing them all the beauties of this place, and my time has been pretty well engrossed by them these three last days.—I have always regretted that I did not sooner know your wish of being a subscriber to the last loan. In the list for the next I will not fail to ask you what sum you would like to be interested in. The fall in Omm. is I believe to be attributed to our continued expences, and the expectation of another loan before the payments on the present are completed.—The present state of the Exchge.s 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 contrary 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 expence 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 expence 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 will 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 Yrs. truly,