trower to ricardo
[Reply to 387.—Answered by 391]
Unsted Wood. Sept. 29—1820
My Dear Ricardo
I am rejoiced to receive so early a reply to my letter; because, I am desirous of satisfying my mind upon the point in question between us, which, appears to me, to involve some very important consequences. I shall, therefore proceed to reply to your objections; sensible, however, that I am rashly engaging in a very unequal contest. “Haud aequo marte feroci”!
I admit most fully, that Commodities will not continue to be produced if they do not pay the costs of production. I admit there is a sort of rough level of profit on productive capital; that this directs capital to its most advantageous employment, and, that the price, that satisfies these costs, is the natural price of Commodities. I admit also, that there is a constant action and reaction, going on, between capital and labor and supply and demand; but what I contend for is, that, in the very nature of things, supply must precede demand.—
You say, “I have not answered one important objection vzt., that if the supply of Corn preceded the demand it must be at a lower price than the grower could afford to produce it; that this is the inevitable consequence of supply exceeding demand.” Let us put price out of the question. You will allow, that, although the circumstance of fixing upon one commodity, as a general medium of exchange, has altered the appearance of things, it has not altered their real nature. But the exchangeable value of Commodities is still regulated by their relative supplies—These supplies being governed by the costs of production. That, although the introduction of money has occasioned the man, who carries money to market to be called a Buyer (or a Demander) and the man, who carries commodities to market, a Seller (or a Supplyer) yet that, in fact, they are both sellers and both buyers; and that the exchangeable value of their Commodities depends upon their relative supplies.—The foundation of all Capital, and all profit, is the power, which the labor of man possesses, in conjunction with the powers of the earth, to produce more food than is necessary for his own consumption. The whole, which he produces is called the Gross produce; the expences attending production, the providing for the laborers employed, and replacing the capital consumed, are called the costs of production; and that produce, which remains after deducting these charges, is called the surplus produce. And this surplus constitutes the profit of capital; it is the fund from which Revenue is derived, from which alone capital can be augmented—And is not this surplus, from the very terms in which it is expressed, a produce over and above the absolute wants of the producers? As the process of production necessarily occupies some time, how could the laborers employed in production, subsist, unless there was a previous supply of necessaries, for their support; to be replaced, out of the new fund arising from their labor? In consequence of the cessation of Barter, and of the use of money, as a medium of exchange, it became necessary to add the profits of capital to the costs of production and to include them both in the prices of Commodities. But, in the nature of things Profit is quite distinct from these Costs, and is what remains after these Costs are satisfied. Suppose a man possesses a capital of 1000. Quarters of Corn, and that he employs it in setting to work 100. men, who, during the process of production, consume 1000 Quarters; and that they produce 1200. Quarters. It is obvious, that the Gross produce is 1200 Quarters the costs 1000 Quarters, and the surplusproduce 200. Quarters. Now, this is the profit; which is equal to 20 pct.. There can be no profit if there is no surplus—And the whole of this profit, for a time, is an addition to the capital of the Country. But, it is of such a nature, that it must speedily be consumed. It may be consumed in the support of unproductive labor, or in the production of necessaries, or in the production of conveniences. If this fresh creation of capital should not be accompanied by any increase of population, it will go to improve the condition of the existing laborers, and eventually to produce an increase. This surplus produce diminishes (for a time) the exchangeable value of the Commodity produced; but, as it is the inevitable condition upon which all profit exists, it is going on, in the same manner, in every employment of productive capital; so, that the general level of exchangeable value is preserved. And this furnishes me with an answer to your objection, that Corn produced, without a demand, would sell under its natural price. No doubt, if Corn were the only article so produced it would—But, as the circumstances attending the production of all Commodities is the same; vzt. that there is no profit, without a surplus; it follows, that, for a time the natural prices of all Commodities alters, so that the level is still preserved. This effect, it is true, is temporary, because population follows, after capital, with such rapid strides; but, still, the operation of the principle is the same, and it is for the truth of the principle I am contending.
In reference to a state of Barter, I should say, that no Commodity will be produced, that does not afford a surplus—That that Commodity will be produced, in preference, which affords the largest surplus—And that as long as any surplus is afforded, there is no limit can be fixed to such surplus, under which Commodities will not be produced—Provided that surplus possesses an exchangeable value. And, that the exchangeable value of Commodities is in proportion to their relative surplus.—
In reference to a state of Money I should say, that no Commodity will be produced, that does not pay the costs of production—That those which afford the largest profits, will be produced in preference. And that as long as any profit is afforded, there is no limit can be fixed to such profit, under which Commodities will not be produced—Provided no better opportunity for the employment of capital exists. And, that the exchangeable value of Commodities is regulated by their costs of production.—
You say, “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 iron, silk, wine & are produced; whether they are not 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”—I answer, that the motive for the production of all commodities is alike, and that demand is always indicated by this relation—And, this answer is perfectly consistent with the view I have been taking. There is not, nor can there be, any difference between us, as to what regulates the supply of one commodity in preference to another. Profit is the mighty hinge, upon which all productive capital turns. What I contend for is, that all Profit is Surplus Produce, and that all surplus produce is, for a time, an addition to Capital. That this addition to capital is constantly going on (although much of it may be rapidly consumed) with regard to all capital productively employed, that it is the only source of Wealth. That if that profit is supposed to be at a general average rate (as is supposed) it does not alter the exchangeable value of Commodities one with another—But, if this growing profit is not accompanied by a proportionate growth of population, it alters the relative proportion of capital and labor, and the exchangeable value of Commodities, in reference to labor. The Costs of Production on all Commodities are then encreased, the surplus produce is diminished, and the rate of all Profits reduced.
When you say “that Corn cannot be at its natural price if the supply preceded the demand.” You do not seem to recollect, that the case of Corn is the case of every other Commodity; and that consequently its natural price has altered together with the natural price of all other Commodities.—Shew me in what other way the profits of productive capital can be realised, than in the surplus produce of Commodities—If it cannot; then must there be an annual addition made to the capital of the Country; and this addition must have the effect (for a time) of lowering the rate of profit; if not accompanied by a proportionate encrease in the amount of productive labor. The exchangeable value of Commodities is in proportion to their relative supplies. Now, Commodities must be divided under two distinct heads; because they produce different effects upon the state of a Country—1. Necessaries. 2 Conveniences. An increase of Necessaries in relation to Labor, has the effect of lowering the exchangeable value of Necessaries in regard to labor; of encreasing the costs of production, improving the laborers condition, and ultimately of adding to its number; for, the supply of labor depends upon its costs of production being paid, as well as any other Commodity.—Now, an increased supply of Conveniences produces a different effect. In the ordinary state of things there is no direct exchangeable value between Conveniences and Labor, for the laborer is not a consumer of Conveniences. An increased supply of Conveniences in relation to Necessaries, diminishes the exchangeable value of Conveniences, (for a time) and increases the Costs of their production. Because, a larger portion of Conveniences must be given in exchange for those Necessaries, required to supply the labor, employed in production of Conveniences—The Consumers of Conveniences obtain them upon easier terms and the comfort and accommodation of the Society is increased. But they have no immediate effect in adding to the population of the Country—It is only by stimulating the producers of Necessaries to encreased production, by offering to them, in exchange for Necessaries, objects of desire that they contribute to the growth of population—An increased supply of Necessaries affords immediate means for an increase of population; although that effect may not always result. But, an increased supply of Conveniences affords no such immediate means. It adds to the comforts of society, but cannot contribute to the increase of the people, except in forcing the growth of Necessaries. This may be accomplished either by converting nonproductive consumers into producers of Necessaries, or producers of Conveniences into producers of Necessaries. What I contend for is, that there are two great principles constantly at work, upon the operations of which depends national prosperity. 1. That principle, which regulates the proportion between the relative supplies of Necessaries and Labor. 2. That principle, which regulates the proportion between the relative supplies of Necessaries and Conveniences. You will say Profit is that principle. I admit it; but then I ask what regulates Profit. You will say the Costs of production. I admit it; but then I again ask, what regulates the Costs of Production? And here, I think, the only satisfactory solution is to be found in the proportionate distribution of the capital and labor of a Country, to which I have been adverting; and in that distribution it appears to me, that the capital and labor employed in the production of Necessaries occasion effects very different from those arising from the Capital and labor employed in the production of Conveniences.—
You say and justly, “that it would be wrong to infer always, that an increase of capital will procure an increased quantity of work to be done”; but I dont see what ground that affords “for disputing my position, that a demand for labor is the same thing as a supply of Necessaries.” If an increase of capital will not procure an increased quantity of work to be done, it only proves, that the demand for labor has not been satisfied. I do not say, that a supply of capital generally, but that [“]a supply of that portion of capital which consists of Necessaries is the same thing as a demand for labor.” There could be no demand for labor made, if that supply of Necessaries did not exist.
In answer to what you observe with respect to Mr. Say, I agree, that a great inequality in the profits afforded by productive capital will not long exist. But, they may exist long enough to produce much individual suffering and national mischief; and it is important to remember, that the interests of States and of individuals are most seriously affected by deviations from the natural course; and not by the ordinary operations of affairs. The Science of Political Economy owes its interest, and its importance, to its teaching us to trace to their true causes the disorders, which are constantly occurring in the course of human affairs, and thus enabling us to avoid the evils they occasion, by ascertaining the symptoms by which they are to be distinguished.—
Pray make our united kind remembrances to Mrs. Ricardo and your family and believe me
Yrs ever truly—