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354.: ricardo to trower1 - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819-June 1821 
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.
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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 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.
[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):
[1 ]Presumably above, I, 205–210.
[1 ]‘equal’ replaces ‘in proportion’.
[1 ]‘ensure’ replaces ‘stimulate to’.
[2 ]‘prevent’ replaces ‘deter’.