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218.: ricardo to barton1 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 7 Letters 1816-1818 [1816]

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The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 7 Letters 1816-1818.

Part of: The Works and Correspondence of David Ricardo, 11 vols (Sraffa ed.)

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218.

ricardo to barton1

Sir

In the letter with which you have favoured me, you have stated your reasons for differing with my theory of profits very clearly and concisely, but it appears to me that you have not succeeded in shewing it to be defective.

My proposition is as you have stated it; “that the rate of profit is regulated in all cases by the rate of wages, one being inversely as the other.” The supposition which you have made does not invalidate its truth for if there should be “a general and progressive decrease of the value of money which should diminish the real income of the fundholder, and of persons living on fixed salaries” still the rate of profit would not rise. The supposition infers1 that all things rise in price, as it is by this operation that the fundholders income is reduced,—he will receive the same nominal sum as before, but in expending such sum he will obtain fewer commodities in return.

The farmer and the manufacturer on the contrary, will, in consequence of the rise in the price of commodities, have a larger nominal income, but not a larger real income, as though they will receive more money for their goods, they will also have to pay more money for the goods which they themselves consume. The farmer indeed will be benefited during the existence of his lease, for one of his outgoings, namely, his rent, will not even nominally increase,—but the general rate of agricultural profits is not to be measured by the particular profits of one, or of a hundred farmers who are peculiarly favourably situated, but by the gains which a farmer commencing business can obtain who is obliged to pay a rent regulated by the current value of money.

But if the fundholder’s power of consuming commodities is diminished will not the farmer’s and manufacturer’s be increased? Undoubtedly it will, but their profits will not therefore be increased. The fundholder derives his income from the taxes which are paid, partly by himself, and partly by the other classes: now if a part of the taxes be remitted the fundholder will receive less, and the other classes will be really gainers in their expenditure, but not in their profits. Suppose I paid £1000 pr Ann. for income tax, my profits being £10000 pr Annm; when the tax is remitted I am £1000 pr Annm. richer, but my profits are still only £10,000, and bear the same proportion as before to the money value of the capital, from which this profit was derived. I am benefited then not by my increased gains, not by any alteration in the rate of profits, but by my power of expending a larger proportion of those profits on myself, and a less proportion on the public, or stockholder.

Your second objection may be rather more difficult to answer but it does not appear to me to be more defensible.1

It is undoubtedly true that in proportion as the accumulations of capital are realised in fixed capital, such as machinery, buildings, &c. they will give less permanent employment to labour, and therefore there will be a less demand for men, and a less necessity for an increase of population, than if the accumulated capital had been employed as circulating capital. But the quantity of goods produced, over and above the necessary consumption, would be precisely the same in both cases, or rather the balance would be in favour of the fixed capital, and not of the circulating capital, as you suppose. You say “Additions to circulating capital increase the supply of commodities in a like proportion; double the circulating capital and twice as much goods will be produced. But the same amount added to fixed capital, increases the supply of goods in a much smaller degree. A man lays out £1000 in hiring workmen to produce cloth thus the quantity of cloth at market is increased by £1100 worth.

But if he lay out the £1000 in building a steam engine for the same purpose the quantity of cloth at market is increased only by the £100 worth, yet in either case the capitalist gains the same profit, viz. 10 pct.” If the labourers hired by the circulating capital were themselves machines and could be made to work without consuming food and necessaries, your argument would be correct, but in fact the master who employs them gets only £100 worth of cloth, the remaining £1000 worth is devoted to their maintenance, and it is clear that instead of producing £1100 worth of cloth they would be obliged to employ their labour in producing food and necessaries for themselves of the value of £1000 if they could not prevail on those who before manufactured cloth to allow them to produce the cloth whilst these others produced the food and necessaries which the new workmen would subsequently require in exchange for the cloth. By the terms of your supposition the men to be employed are in addition to the number before employed, and therefore neither food nor necessaries can be provided for them but by devoting their own labour to such an object, or by prevailing on the society to consent to a different distribution of employments. Ten elevenths of the labour which the additional £1000 can command will be really employed in providing for the maintenance &c. of the labourers, although these particular labourers may in no way immediately contribute to it. This proportion of the capital will be expended in supporting a rapidly perishable machine, and the real net income of the country will be increased by £100 worth of cloth, and not by £1100 worth. £1000 worth of goods will be actually consumed by those who reproduce a value equal to £1100 and £100 only will be clear gain to the society. In the case of the fixed capital £1000 worth of goods less will be produced, but at the same time £1000 worth less will be consumed, and the clear1 income of the society will be equally of the value of £100. The case is evidently put for the sake of the argument, and could not really take place, for there is no new creation of machinery which entirely supersedes the use of the labour of man. A steam engine requires the constant labour of man—he must regulate its motion and velocity—he must procure coals for the fire necessary to work it—he must attend to its annual repairs, and by degrees in a rich country the employment of men for these purposes becomes on an average as nearly a fixed quantity, as the number of men devoted to any other occupation. Although steam engines should last for a hundred years the average demand for them might vary very little.

In your conclusion on this subject you make I think the same mistake as before, you suppose that because the stockholder and those having fixed salaries have less command over the comforts and necessaries of life, and the manufacturers and farmers1 more, that therefore the rate of profits of the latter will increase, which is by no means a necessary consequence, as a man may be benefited by his income becoming more efficient in expenditure than before, although it bears no greater proportion to his capital.

On this subject I have completely satisfied myself but as your previous thoughts may not have run in the same channel as mine have done, I may have made use of language which will fail to bring conviction to your mind. At any rate I request you to read from page 442 to the end of the chapter in my late publication and to consider also the passage in Page 1313

I am Sir Your obedt. Servt.

David Ricardo

Upper Brook Street 20 May 1817

[1 ]Addressed: ‘Jno. Barton Esqr. at / Mrs: Woodrouffe Smith’s / Clapham / Surry.’

MS in the possession of Prof. J. H. Hollander, Baltimore. (See Maggs Bros., Autographs Cat. No. 352, Xmas 1916).—Published in a note to the reprint of John Barton’s Condition of the Labouring Classes of Society, ed. by J. H. Hollander, Baltimore, 1934, pp. 67–9, from which it is reprinted here (with a correction in the address from a photostat supplied by Prof. Hollander).

John Barton (1789–1852) was a Quaker, and one of the promoters of the Savings Bank, the Lancasterian School, and the Mechanics’ Institution at Chichester, where he lived. See Gentleman’s Magazine, April 1852, and the biography of his son and namesake John Barton, A Memoir, by C. E. Barton, London, 1910.

When this letter was written Ricardo’s Principles had been out for a month. Barton’s Observations on the Circumstances which influence the Condition of the Labouring Classes of Society, London, Arch, 1817, was written in June (as the author says, p. 46) and published later in the year (cp. Monthly Literary Advertiser, 10 Nov. 1817). In that pamphlet Barton seems to have accepted Ricardo’s explanation on the first point of this letter, but he persists in his second objection.

[1 ]Replaces ‘supposes’.

[1 ]For Ricardo’s subsequent change of opinion on this point, see the chapter ‘On Machinery’ in ed. 3 of the Principles.

[1 ]Replaces ‘net’.

[1 ]‘and farmers’ is ins.

[2 ]Above, I, 64.

[3 ]Above, I, 119.