387.: ricardo to trower1[Reply to 384.—Answered by 390] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819-June 1821 [1819]
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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. 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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387.
ricardo to trower
[Reply to 384.—Answered by 390]
Gatcomb Park 26 Septr. 1820
My Dear Trower
You see that I follow your good example, and while the subject is fresh in my memory offer the best reasons I have in vindication of the view which I take of it. The point in dispute is this, Does the supply of corn precede the demand for it, or does it follow such demand? You are of the former—I of the latter opinion. You have not answered one important objection I made to you, namely, that if the supply of corn preceded the demand it must be at a lower price than the grower could afford to produce it—this is the inevitable consequence of supply exceeding demand—who under such circumstances would be induced to grow the surplus quantity of corn? Your mistake appears to me to proceed from considering the case too generally. It is undoubtedly true that if production were wholly under the control of one individual, whose object it was to increase population, he could not better effect his object than by growing more corn in the country than the existing community could consume—it would in that case be at a low price, and the greatest stimulus would be given to population. We might indeed then justly say that it was the abundance of corn which raised up consumers, and that in this respect corn differed from iron, silk or any other commodity, but this is not the question under consideration, what we want to know is, whether, in the present distribution of property, and under the influence of the motives which invite to production, corn is produced for any other reason than that iron, silk, wine &c. &c. are produced—whether they are not all produced on account of an actual or expected demand for them, and whether this demand is not always indicated by the relation of the market price to the natural price? If the supply existed one moment previously to the demand, the market price must sink below the natural price, and the manufacturer of the commodity or the grower of the corn, whichever it might be, would not get the usual and general rate of profits, and would therefore be unwilling to produce such a commodity.
What all producers look steadily at is market price, and its relation to natural price. Suppose you to be disposed to add from your revenue to capital this year, it would not induce you to change the nature of your production, for whether you spent your revenue, or employed it as capital, the next year, your immediate object would be to realize it in money. But with your increased capital what would you produce next year? Corn undoubtedly, if the price indicated that the supply did not equal the demand, or if you had good reason to expect that but for your production the supply would not equal the demand. Now what I ask is would not the same motives induce you to employ your additional capital in the manufacture of cloth, iron, silk, &c., if you answer it would not, then I request you to give me your reasons why you, or any other producer, would so obviously neglect your best interest. If you answer that the motives for the production of either of these commodities are the same, then there is an end of the dispute, for this is all that I am contending for. Suppose a man intent on saving were to employ his savings in producing corn—he would do unwisely if he did not expect the price of corn to be at least as high as its natural price,—in this you must agree—he will not then produce corn. But corn is as high as its natural price, then there is an end of the argument, for it can not be so if the supply preceded the demand. You will not say that he may as well produce corn as any other commodity, because it is possible that corn and all other commodities may be under their natural price, for that would be to adopt the great and fundamental error of Mr. Malthus, who contends that there may be at one and the same time a glut of all commodities, and that it may arise from a want of demand for all—he indeed argues that this is the specific evil under which we are at present suffering. This is I think the only defence you can make for your opinion, and if you do make it, I shall know how to deal with you in a subsequent letter—at present I shall content myself with saying that I have no conception of any man knowingly and wilfully producing a commodity which will sell under its natural price. I do not deny that it is often done, but then I say it is from error and miscalculation, and cannot continue for more than one or two years.
You say that “the surplus produce of necessaries must in the first instance have preceded the surplus produce of conveniences,” but did the surplus produce of necessaries precede the demand for them?—this is the question—I say they did not, for the men who had their labour to offer in exchange for them were the effective demanders of this surplus produce, and the conveniences are the result of this demand.
A man first produces necessaries because he himself has a want or demand for them—he produces more of these necessaries because he wants conveniences, and he can obtain them by other men’s labour, which his necessaries will command. Hitherto he has produced nothing for which there is not a demand. But he wants to increase his possessions, and it can be done only by having the power to employ more people; must not his first step be to provide necessaries for such additional number of people? Not absolutely, because he may have the power of employing more people, and others may have the means of employing fewer—his capital will increase whilst that of another man diminishes. But no other mans capital diminishes! The aggregate capitals will be increased! If labour cannot be procured no more work will be done with the additional capital, but wages will rise, and the distribution of the produce will be favorable to the workmen. In this case no more food will be produced if the workmen were well fed before, their demand will be for conveniences, and luxuries. But the number of labourers are increased, or the children of labourers! Then indeed the demand for food will increase, and food will be produced in consequence of such demand. It would be wrong to infer always that an increase of capital will procure an increased quantity of work to be done, it will be followed by no such effect if the labourers happen to be in a position to enable them to command the whole addition to the fund for the maintenance of labour, without doing any more work.
I thought of leaving off half an hour ago but my pen runs on. I cannot even now conclude without expressing my satisfaction at the improvement in your knee—I hope all traces of your late accident will soon be lost.
Ever Yrs.
David Ricardo
There is a part of your letter I have not noticed, I mean that part which refers to M. Say’s doctrine of demand being only limited by production. His doctrine appears to me to be correct. You say it must be limited by the due distribution of capital. Undoubtedly you are right, but M. Say would answer that private interest would always lead to such a due distribution. He would not deny that errors might be made, and more of one, two, three, or of 50 commodities be produced than what there was any effective demand for, but he would not agree with you that for any length of time there could be high profits on manufactures and low profits on land. High profits are the consequence of high price—high price of increased demand—increased demand of an imperfect distribution of capital, it is the remedy and not the grievance.
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