malthus to ricardo
[Reply to 442.—Answered by 444]
St Catherine’s Bath July 16th. 1821
My dear Ricardo,
It would have given me, I assure you, very great pleasure to join your party while Mr. Tooke was with you, but we are expecting Mrs. Taunton tomorrow to join the family circle here, and I should not be forgiven if I were to secede, particularly as we shall be returning to Town early in next week.
I thought Maculloch would be very much vexed at your chapter on machinery, coming so immediately, as it did, upon his review. I quite agree with you in the theory of your proposition, but practically I think that the cases are very rare in which for any length of time the gross produce is deminished by machinery. You have used one expression which is liable to be taken fast hold of by the labouring classes; and perhaps you have not fully considered all the bearings of your concession on the other parts of your work. You have said for instance in your letter [to] me that an increased power of production must be accompanied with an increase of productive or unproductive expenditure, which could not be the case if the gross produce were diminished. I, indeed, was alluding to a temporary increase of produce, and therefore the observation was perfectly just as applied to me. I only mention it to shew how the concession may bear unexpectedly on other opinions and expressions.
With regard to our present subject of discussion it seems as if we should never thoroughly understand each other, and I almost despair of being ever able to explain myself, if you could read the two first paragraphs of the first section of my last chapter, and yet “understand me to say that vast powers of production are put into action, and the result is unfavourable to the interests of mankind”.
I expressly say that it is my object to shew what are the causes which call forth the powers of production; and if I recommend a certain proportion of unproductive consumption, it is obviously and expressly with the sole view of furnishing the necessary motive to the greatest continued production. And I think still that this certain proportion of unproductive consumption varying according to the fertility of the soil &c: is absolutely and indispensably necessary to call forth the resources of a country. Is it not almost a contradiction, to quote with approbation that passage of Adam Smith which says that the demand for food is limited by the narrow capacity of the human stomach, but that the demand for luxuries and conveniences has no limits, and yet to say that parsimony, or the saving of expenditure in luxuries and conveniences and increasing the production of necessaries cannot be unfavourable to wealth.
Surely I have no where said, as you seem to intimate, that people will continue to produce without a motive; because I expressly give as the reason for the scanty produce of the world, the want of sufficient motives to produce. Now among the motives to produce, one of the most essential certainly is that an adequate share of what is produced should belong to those who set all industry in motion. But you yourself allow that a great temporary saving, commencing when profits were sufficient to encourage it, might occasion such a division of the produce as would leave no motive to a further increase of production. And if a state of things in which for a time there is no motive to a further increase of production be not properly denominated a stagnation, I do not know what can be so called; particularly as this stagnation must inevitably throw the rising generation out of employment. We know from repeated experience that the money price of labour never falls till many workmen have been for some time out of work. And the question is, whether this stagnation of capital, and subsequent stagnation in the demand for labour arising from increased production without an adequate proportion of unproductive consumption on the part of the landlords and capitalists, could take place without prejudice to the country, without occasioning a less degree both of happiness and wealth than would have occurred if the unproductive consumption of the landlords and capitalists had been so proportioned to the natural surplus of the society as to have continued uninterrupted the motives to production, and prevented first an unnatural demand for labour, and then a necessary and sudden diminiution of such demand. But if this be so, how can it be said with truth that parsimony, though it may be prejudicial to the producers cannot be prejudicial to the state; or that an increase of unproductive consumption among landlords and capitalists may not sometimes be the proper remedy for a state of things in which the motives to production fail.
You yourself indeed say the same thing in your letter. In speaking of the low profits occasioned by excessive saving, you intimate that the great proportion of the produce awarded to the labourer may be remedied in two ways, either by the increase of hands, or by an increase of the unproductive expenditure of the employing class. Now the first remedy, to the extent you require we have not at our disposal. Consequently the second remedy or an increase of unproductive consumption on the part of the landlords and capitalists is the one which according to you we must resort to, to restore and continue the motives to production. But this conclusion which I think quite just, appears to me hardly consistent with the strong protest which you make in another part of your letter against an increase of consumption as a remedy to the stagnation of trade in this country. We may however consistently differ in the application of a principle in which we agree; for I think we may now be said to agree that a certain amount of unproductive expenditure on the part of those who have the means of setting industry in motion is necessary in order that they may be awarded a proper share of the produce; but you think that in the case of this country the evils we complain of do not in any degree arise from a partial approach to the kind of stagnation above described. On the propriety of applying our principles respecting profits to the case of this country I will not now enter into a discussion, but will only say that the symptoms appear to me exactly to resemble those which would arise from the sudden conversion of unproductive labour into productive, and the diminution of unproductive consumption; and that as a matter of opinion I am inclined to believe that if the Stockholders in their new situation saved less and spent more profits would be higher and the stagnation of trade diminished. But our question is now more about general principles; and if on general principles a certain proportion of unproductive consumption on the part of landlords and capitalists is absolutely necessary to maintain a fair rate of profits, surely it is a part of the theory of profits and demand which ought to receive a full discussion.
The unproductive consumption of the labouring classes themselves, beyond what is necessary, not only to their powers, but to their increase, is so far different from the unproductive consumption of their employers, as to occasion exactly the opposite effect on profits. Indeed, though it may fairly, in one sense, be called unproductive expenditure, it comes under that division of the whole produce which is destined to replace a capital, and not that which is destined for immediate consumption (according to Adam Smith).
It is justly to be lamented that the Bank directors have managed the matter of the currency so ill. This is shewn by the state of the exchanges. But besides the fall of prices and rise of money occasioned in this way I cannot help thinking that there is a further effect of the same kind both here and in America occasioned by the diminution of demand and relative excess of supply, and that more is attributed both to the paper and the Bank directors than belongs to them.
Pray remember me to Mr. Took. Mrs. M. joins with me in kind regards to Mrs. Ricardo and the family.
Ever truly Yrs.
T R Malthus