391.
ricardo to trower
[Reply to 390.—Answered by 397]
Gatcomb Park 3 Octr. 1820.—
My Dear Trower
We are agreed upon so many points, connected with the subject under discussion, that I do not think we can long differ upon that on which there is now a contrariety of opinion. You are perfectly right in estimating profits in the way you do. If the expenditure of 1000 qrs., 1200 qrs. would be the gross income, and 200 the net income, or profit. If the expenditure of 1000 lbs. of iron would ensure a return of 1200 lbs, 200 lbs would also be the net profit; but your mistake, I think, is this, you suppose that because when 1200 qrs. of corn are produced, and by the same expenditure 500 cwt of iron and 100 pieces of cloth, and consequently, they are all of the same value, therefore when the quantity of each of these commodities is doubled they will still be of the same value:—it may affect the division of the gross produce you think between the capitalist and the labourer, but as this will affect all commodities alike, their relative values will remain the same. If one is below, for a time, its natural price, all will be so. Now on the truth of this doctrine depends the whole question. I contend that in all ordinary cases some commodities will under the circumstances supposed be very much below their natural price, that is to say below the relation which they should bear to other commodities. If 1200 qrs. of corn be of the same value as 500 cwt of iron, and 100 pieces of cloth, as before supposed, those are the relations which should be preserved between them to keep them all at their natural value, and to afford equal profits to the producer of each, however their quantity may be multiplied. But the market price of every commodity depends on the relation between demand and supply, and it is the interest of all the suppliers of commodities to cease producing them when they fall below their natural value. The demand for corn, with a given population, is limited; no man can have a desire to consume more than a certain quantity of bread, if therefore more than that quantity is produced, it will fall in relative value to those commodities which are produced only in such quantity as is required. But the demand for commodities such as luxuries; or for services, such as are performed by gardeners, menial servants, builders &c. &c. is unlimited, or rather it is only limited by the means of the demanders. Under these circumstances it is not necessary to produce any thing for which there is not a demand, and therefore it is not necessary that any thing should be under its natural price. If the demand for corn were for 1000 qrs. it would be absurd to employ 100 qrs. when we knew that the result would be 1200 qrs. would be unnecessary, and it would be much better policy to employ 833 qrs. to obtain 1000, and the remaining 166 to obtain some convenience or luxury the demand for which could be positively anticipated. The same remark applies to iron, cloth &c. &c. If we were under any obligation to produce them, or to produce nothing, there might be an universal glut, and the glutted market of one commodity might continue in its former relations to the glutted market of another commodity, but there would be no glut of any commodity, because the capital of the country could be always employed in producing commodities for which there would be a demand. If in the division of the gross produce, the labourers commanded a great proportion, the demand would be for one set of commodities—if the masters had more than a usual share, the demand would be for another set. Suppose the labourers were so well off, they would not demand more corn than they wanted for themselves, but yet none of their revenue would remain unexpended, an unusual quantity of the luxuries and conveniences of the labourer would be demanded. When would the demand for an additional quantity of corn commence? then only when an unusual number of children were born, and this would eventually take place for it never fails to follow the easy and happy situation of the labourer. Before this there would be no demand, and before this there would be no supply. It follows I think irresistibly from your own doctrine. “Profit is the mighty hinge, upon which all productive capital turns.” In every state of society there will be a demand for some commodities, and it is these which it will be the interest of capitalists to produce. If they produced corn before there was a population to consume it, they would produce more of that commodity than could be consumed, and consequently it would fall in relative value to those things which would be demanded. If I satisfy you on this point the argument must be at an end. The capitalist says, “if I produce corn, I shall lose, for it will fall in relative value.” “If I produce iron in greater quantity, that may perhaps not be wanted, but if I produce those luxuries required by the labourer I am sure I shall find a market for them, and their price will afford me a better profit than if I produced more corn or more iron.[”] If all commodities were on a par, and whichever I produced would glut the market, then I should agree with you, but being perfectly sure that there would be a demand for commodities of some description,—on the part of the capitalists if profits were high—on the part of the labourers if wages were high—I feel confident that the production of no commodity, except from miscalculation, precedes the demand or anticipated demand for it. Our difference then is [that] you say that if corn and all other commodities be increased in [the] same proportion, they will continue at the same relative value to [each ot]her. To which I answer If the population do not immediately increase, there will [be no] additional demand for corn, but there will be an additional [dem]and for other things, consequently corn cannot be produced without affording less profits than can be obtained by the production of those other things. It is most true that “if this growing produce 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” but the labourers will chuse what commodities they shall buy with their additional wages, we are quite sure that corn will not be one of them, and as sure that some convenience or luxury will be chosen. I recollect that if the production of corn costs more, on account of the rise of labour, so will also the production of other things, and therefore if they bore the same relation to each other, there could be no motive for producing one rather than the other; they might all then be in great abundance. But I say they will not continue in the same relation to each other, one will be demanded the other will not. It is not a question of cost of production, but of the relation of market price when produced, to cost of production. Look into your own household and tell me what would be the effect of doubling your income. You would spend it all, but would you double your demand for every commodity you now consume in your family? Should you purchase twice the number of loaves, twice the quantity [of] meat, poultry, horses, carriages &c. &c.? No; you would con[sume] more bread—you would probably have a little more m[eat] and fish because you would keep more company, but you [would] spend much more than double what you now do on pictures and many other [things] to please yourself, and Mrs. Trower. No mistake can be greater than to suppose that the demand for every thing increases in the same proportion. You say the labourer is not a consumer of conveniences. Is this true? If he is not, must we not impute it to his poverty? Give him the means, and do you think he wants the inclination? Will he not improve his house and furniture, his clothing, and that of his wife and children—will he not purchase more fuel, and indulge himself in the enjoyment of better beer, tea, tobacco and snuff?
I forget what I said about M. Say’s doctrine, but whatever it was I agree with you that a great inequality in the profits afforded by productive capital may produce much individual suffering, by the inducement which it offers to the change of employments. This evil however generally follows from bad legislation. If free trade were now established, how many individuals would suffer! Political Economy would teach us to guard ourselves from every other revulsion, but that which arises from the rise and fall of states—from the progress of improvement in other countries [than] our own, and from the caprices of fashion:—against these [we can]not guard, but we are not permanently to deprive our country [of many] and important benefits because the adopting of a good instead of [a bad syst]em, will be attended with loss to individuals—I would make [the]ir fall easy, but I would not to support them, perpetuate abuse, and countenance bad laws. It is a safe rule to legislate for the public benefit only, and not to attend to the interests of any particular class. In these sentiments I have no doubt I shall have your concurrence.
I have answered your letter without delay, because I expect a few friends to-morrow, and my time will for some time be fully engaged.—
Mrs. Ricardo unites with me in kind remembrances [to] Mrs. Trower.
Yrs. very truly,
David Ricardo
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