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354.: ricardo to trower1 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819-June 1821 [1819]

Edition used:

The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 8 Letters 1819-1821.

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

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


354.

ricardo to trower1

London 28 Jany.1820

My dear Trower

I very much regretted not seeing you at dinner on the day I met you in the Strand, we had a very agreeable day, and some discussions in which you would have liked to participate.2

I am glad to hear that you are again looking at the subject of Political Economy, and that you still see no reason to doubt the truth of the principles which I have endeavored to establish. I have looked to the passages in my book to which you refer.1 I quite agree with you that in most cases of taxes on income, or on profits, no effect would be produced on prices, and the burthen, which in every case would be equal, would fall on the producer, or the man enjoying the income. But I have supposed a case of our having the mines which supplied our standard, in this country, and that the profits of the miner were not taxed, then commodities would rise in price to the amount of the tax, or the miners business would be more profitable than any other, and consequently would draw capital to that concern. If then all commodities rose in price what would they rise? not in proportion to their value, but in proportion to the capitals employed in their production, and therefore as commodities selling for £4000 may be the result of the employment of the same amount of capital as commodities which sell for £10000, these commodities would not rise in proportion to their prices but if one rose £200—the other would also rise £200. Now in this situation of things suppose money to rise in value and the goods which sell for £10200 to fall to £10,000 the other goods which sell for £4200 will fall to £4000, but if money should continue to rise in value and consequently the goods which sold for £10000 should fall to £5000, then those which sold for £4000 would fall to £2000. Up to certain point then they fall in proportion to the capitals employed in their production, but subsequently in proportion to the value of the goods themselves. This is the opinion which I wished to express, whether it be a correct one is another question. On the hasty consideration which I can now give it I see no reason to doubt it.

A tax imposed on goods, exactly equal1 to the tax on profits which each man would have to pay, will have precisely the same effects.

I never contemplate as a good and practical measure, a tax on profits, without also taxing all other sources of income. Profits can never be known without a minute scrutiny into the affairs of those concerned in trade, other sources of income are well known and may be easily come at. The landlord cannot well conceal the amount of his rent, nor the stockholder the amount of his dividend, and therefore it might become a question whether you should not tax the profits of trade indirectly, by taxing wages, or necessaries; and other incomes directly, as rent, dividends, annuities &ca.. &ca..

As a political economist I say that there is no tax which has not a tendency to diminish production, in the same way as a deterioration of soil or the loss of a good machine, but I mean nothing more than that it is an obstacle opposed to production. You say it is such obstacles as these which stimulate to exertion, and experience proves they are always overcome. I have no doubt that there is a degree of difficulty in production which acts in the way you mention; if too strong however it will oppose a physical difficulty which can not be overcome. I think the difficulties in our case are not precisely in the proper degree to ensure1 the greatest production. Still it is correct to record the obstacle and acknowledge it to be one. You compare the expences of the rich proprietors and the expenditure by Government of money received in taxes. With respect to future production it is indifferent whether this portion of the general revenue be expended by one or the other, excepting in this that in the expenditure of government a tax will be required for the future increased production as well as for that which is usually produced and this may prevent2 the production of the increased quantity altogether. A tithe on land which cannot afford a rent will prevent that land from being cultivated until the price of corn rises. If there were no tithe the same land might be cultivated for the proprietors benefit. If all I am to get is to be expended by the state I will not produce, if it is to be expended by me, I will. After it is produced it is not of much importance whether the state or I expend it, to the public at large, but it is of immense importance in determining me to be active or idle. Taxes for the benefit of trade itself such as for Docks, canals, Roads, &c. &c. are on a different footing from all other taxes, and produce very different effects, they may and generally do promote production instead of discouraging it.—I am glad you have not persuaded yourself that taxes are very delightful things. I am very sorry to be obliged to agree with you that there are a very few who are perfect masters of the science of Polit. Econ.

I have been much entertained by reading Ivanhoe though not in an equal degree as by reading some of the other novels written by the same author.

Mrs. Ricardo joins with me in kind remembrances to Mrs. Trower.

Ever Yrs

D Ricardo

[1 ]MS at University College, London.—Letters to Trower, XXXIV.

[2 ]Perhaps the dinner at Ricardo’s on 12 January, of which the following account is given in J. L. Mallet’s MS diary (anecdotes about Campbell, Rogers, Windham and Horne Tooke are here omitted):

‘14 Jan. 1820. Dined the day before yesterday at Mr Ricardo’s where I met Whishaw, Mr Grenfell, Sharpe, Macdonnell, Mr Tooke and Mr Boddington. I had never seen Pascoe Grenfell, of financial celebrity. He is a particular friend of Ricardo’s: a clearheaded sensible, moderate man, without pretensions. Mr Tooke is a Russia Merchant, also a man of sense and information, who was examined by the Bullion Committee [of 1819]. Sharpe and Whishaw led the band. Ivanhoe was rather severely criticised: the 3rd volume not liked. Speaking of Literary property, it was observed that an author ought never to part with his copy right if he can avoid it.... Mr Ricardonever made anything. He gives his works to Murray but then they consist of pamphlets, and of his political oeconomy, which has not been read by 200 persons in the country, altho’ the Edinburgh Review got off the first edition....

‘It is impossible to be in company with Ricardo and not to admire his placid temper, the candour of his disposition, his patience and attention, and the clearness of his mind; but he is as the French would express it “herissé de principes ” he meets you upon every subject that he has studied with a mind made up, and opinions in the nature of mathematical truths. He spoke of Parliamentary reform and vote by Ballot as a man who would bring such things about, and destroy the existing system tomorrow, if it were in his power, and without the slightest doubt as to the result. And yet there was not one person at Table, several of them Individuals whose opinion he highly valued, who would have agreed with him. It is this very quality of the man’s mind; his entire disregard of experience and practice, which makes me doubtful of his opinions on political oeconomy. His speech on paying off the national debt has very much damaged him in the House of Commons, which cannot but be regretted. He and Mr Tooke, and Grenfell, and Sharpe appeared to me to regard the state of the Country in much too favorable a point of view: the only circumstances upon which they laid any stress was the transfer of capital abroad: but as to losses of capital at home, deterioration of fixed capital, wages without adequate returns, lessening of consumption, agricultural sufferings, they made light of these things; it was enough that they were provided for and classed under their proper heads, with the natural remedies, in Books of Political oeconomy. Among other things, they maintained that the Paper Money System had given no facilities to the Government for carrying on the late War; and that we might have done all that we did by the Bank paying in specie.—I doubt it; but the arguments would be too long.

‘Ricardo knows Owen intimately. He says that he is a thorough necessitarian; but being at the same time a Deist, he believes that all works for the best. It were to be wished, upon this principle, that he would be less pertinacious in his efforts to alter the state of society.’

[1 ]Presumably above, I, 205–210.

[1 ]‘equal’ replaces ‘in proportion’.

[1 ]‘ensure’ replaces ‘stimulate to’.

[2 ]‘prevent’ replaces ‘deter’.