ricardo to mcculloch
[Reply to 434.—Answered by 474]
Gatcomb Park, Minchinhampton 30 June 1821
My Dear Sir
I am glad that you are going to write an article in the Review on the importance of adhering to the standard of currency fixed in 1819. It is singular that those who have usually maintained sound principles on this important question are, or rather have been, amongst the most vehement to call for such modifications of the standard, as would be equivalent to an alteration of it, while the ministers, who were the last to see the question in its true light, are now found amongst the firmest supporters of an unvarying and fixed standard. I am in hopes that all chance of a repeal of the law of 1819 is now gone by, and that we shall so far profit by our past experience as never to venture on the repetition of so dangerous a measure as that of 1797.
You wish to have my opinion of Mr. Mushet’s tables which I will give to you most freely, and only hope that I may be sufficiently clear to be easily understood. His plan was to shew, by a debtor and credit account, what the fund-holders, had, on the whole, gained or lost, by the successive measures of first depreciating the currency, and then restoring it to its ancient standard. During the period that the currency was depreciated, the stockholder lost a portion of his annual dividends, on that portion of the debt which existed prior to the depreciation. But as during the same period he advanced loans to the State in the depreciated currency, on which he should have received dividends, for ever, in a medium of the same value, he is a gainer by being now paid in a medium raised in value. Mr. Mushet proposed to compare these gains and losses, and to determine which on the whole preponderated, but he has committed some very grave errors. In the first table, his calculation is made on a capital of £471,335,923, on the supposition that such was the amount of the unredeemed debt;—in 1800, in point of fact that was the amount of the whole debt, redeemed as well as unredeemed—he should have confined himself to the unredeemed debt. Secondly, in the same table, he calculates the interest at 5 pct. on the nominal capital, and therefore supposes the public creditor entitled to a dividend of 23 millions, but as the greatest part of the capital consisted of 3 pc. ts the real dividends did not amount to more than about The same observation applies to the last column, which consists of the capital Stock created, not the money value of that stock. Mr. Mushet himself thinks that this is not a matter of much consequence, as it tells one way as well as the other;—it certainly does so, but I very much doubt whether it tells as much one way as the other. Thirdly; In the first table he sets out with his money at par, and therefore if his dividends were correct in amount the result would be as he has stated, a loss to the stock holder of £40,099,891, in money of our present standard; but in table 3, and in most of the others, the market price of gold differs from the standard price, and therefore the gain at bottom of £69,457 is not a gain in our standard money, but in a depreciated money, valued by a standard of gold at £4. 5 – pr oz. To make this amount correct he ought to make a further calculation, and say, as £4. 5 is to £3. 17. 10½, £69,457 is to x, the correct sum. In table 4 the standard is £4. 4; 5, £4 16, £5 4 &ca., &ca. His results, which are finally added together, instead of being in one standard common to all, are in standards almost as various as the sums, and must lead to the most false conclusions. In all his calculations for interest from table 21 to 226 he has been satisfied with simple interest—I contend he should have taken compound interest. If I had been an old stock holder, and if for 20 years, in consequence of the depreciation of the currency, I had been deprived of £100 pr. Annm., my loss would have been £3300; for £100 pr. Annm., accumulated for 20 years at compound interest, would amount to that sum; according to Mr. Mushet my loss would only be £2950, or £2000 for loss of dividends, and £950 for the simple interest on them. These which appear to me to be errors, I have pointed out to Mr. Mushet himself, and I believe it is his intention to cast his tables anew and make them more correct in another edition.
I believe I have entered more particularly into the details of these tables than is necessary—I have done so for the purpose of shewing you how totally inadequate they are to satisfy us respecting the real loss or gain to the Stock holder from the various tamperings with the currency during 20 years.
Now for a few words respecting machinery. You state a very fair case of a manufacturer getting 10,000 yards of cotton out of 100,000. If his 10,000 yards were wholly produced by machinery, which is to last for ever, and to be of the same value as the capital previously employed in labour and in producing 100,000 yards, you say cottons would rise, because capital cannot move from one employment to another with the rapidity which a contrary supposition would require. I admit every thing you contend for on this point, and I ask what will be the condition of the labourers in consequence of the application of machinery to this trade. Whatever may be the price of the cottons there will be a diminution in the quantity produced, and no more of any other commodity will be produced in its stead. Is it possible to conceive so great a diminution of production without suffering to some of the classes of society. The effective demand for cottons cannot be so great as before, because that demand depended on the demand for corn and cloth, the commodities consumed by the labourers, whose wages were really paid in cottons. Labour will fall because there will be a diminished demand for it—Corn and cloth will fall because the demand for them depended on the demand for labour. Cottons may rise a little but the high price can only last till additional capital is attracted by high profits to that trade. There will be every motive to quit that employment which does not yield the ordinary profits, for the purpose of engaging in that which yields more than the ordinary profits. I ask for no greater concession than this. In admitting that by the use of machinery the gross annual produce of the industry of the country will be diminished you give up the argument, for the gross annual produce cannot be diminished in any other way but by a diminished employment of the industrious classes. If machinery could do all the work that labour now does, there would be no demand for labour. Nobody would be entitled to consume any thing who was not a capitalist, and who could not buy or hire a machine.
I wish much that I could pay a visit to Scotland this summer, but my engagements with my family will I fear prevent me. I have three children married, and they all live within the distance of 28 miles from my residence in the country, besides which Mrs. Ricardo would not consent to my going without her, and she could not go without my two youngest girls, and if they went the governess must go:—she in her turn would make it necessary to take others, and thus the undertaking would become a serious one. It would I assure you give me great pleasure to be personally known to you, and I do not despair on some future occasion of surmounting the obstacles which at present oppose themselves to our meeting. If you were at all inclined to a little journey I should be most happy to see you here. Perhaps you could spare a little time from your labours, if so, pray come.
Most truly Yours