ricardo to malthus
[Reply to 62.—Answered by 67]
Gatcomb Park 23d. Octr. 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 favoring 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 expence 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; a distiller’s, for example, we should calculate such profits according to the then value of barley, altho’ a few individual distillers might have been so fortunate as to purchase their barley when it was 25 pct. 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 a head of the price 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 tho’ 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 ever 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 under-rated 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 5 Chap 1 Page 134 concisely expresses what appears to me correct, of the effects of demand on the prices 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 their 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 expence 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.