459.: malthus to ricardo1[Reply to 458.—Answered by 460] - David Ricardo, The Works and Correspondence of David Ricardo, Vol. 9 Letters 1821-1823 
The Works and Correspondence of David Ricardo, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005). Vol. 9 Letters 1821-1823.
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malthus to ricardo
[Reply to 458.—Answered by 460]
E I Coll Sepr 25. 1821.
My dear Ricardo,
I am sorry that I did not make myself understood. I thought that the term external would have prevented you from supposing that I meant a commodity in the same country, where of course I am aware that profits would be nearly the same. I will try an illustration.
Suppose that corn money and commodities, were obtained in the great mass of nations connected with each other by commerce, at a rate of profit of ten per cent; but that in one country half the quantity of labour only was necessary to produce corn, while other commodities were produced with as much labour as in the rest of the world: and further let us suppose that a free trade is established. It is obvious that under these circumstances, the country with the fertile soil would purchase nearly all the manufactured commodities it might want with its corn—that its corn, which might have been cheap at first from redundant supply, would rise from exportation nearly to the general level, estimated in the money of the commercial world, while its manufactured commodities would be high, and those bulky domestic commodities which could not be imported might be very greatly above their level in other countries. In this state of things, if we could suppose the national capital and the demand for labour to be nearly stationary, we might conceive that labour would be the same in money price as elsewhere, while profits might be a hundred per cent, and the price of domestic goods double the price in other countries. Proceeding from this point it is obvious, that in the course of a hundred years (if accumulation were supposed) labour and corn might continue at nearly the same price, while domestic commodities, from the fall of profits to the level of other countries, would fall to half their price estimated in the money of the commercial world, which is all along supposed to be obtained by the same quantity of labour and capital, and at the same rate of profits.
The supposition which I have here made is not likely to be exactly realised; but a striking approximation to it actually exists in the case of America. The only difference is that the demand for labour, as we should naturally expect under such circumstances, has awarded to the labourer a large quantity of corn, the effect of which has been to keep the general rate of profits comparatively low, that is, at 20 per cent perhaps instead of a 100. This has prevented the domestic commodities of America from being so much affected by profits, though, on that account, they have been more affected by wages, which owing to a demand for labour much greater than in Europe, acting upon a price of corn not much less, are considerably higher than in other countries. But altogether it appears to me certain that in the progress of the cultivation of America, the price of her domestic commodities will decidedly fall estimated in hogsheads of French Claret or in the money of Europe, while a mean between her corn and labour will remain nearly the same.
According to my views, whenever money or any other commodity is obtained by double the quantity of labour necessary to produce corn, and also at a very high rate of profits compared with other countries it is an infallible sign that such money or commodity is extremely scarce compared with the demand for it and that consequently it will fall in value in the progress of accumulation and cultivation. A hogshead of claret in a stationary country, may continue for years to exchange for the same quantity of hats in a progressive country; but this is merely because in the latter country the fall in the value of silver counterbalances in price the real diminution in the cost of producing hats occasioned by the fall of profits.
The diminution in the cost of producing hats or money, which arises solely from the fall of corn and labour is quite of a precarious nature and is at all times liable to be completely put an end to by such a demand for corn and labour as is extremely probable, and has often been actually experienced in the commercial world.
No other supposition can render money of the same value at all times than that of supposing it be obtained always by the same quantity of labour without any capital. Surely, on the first blush of it, it seems almost a contradiction to suppose money of the same value, which with the same labour, is at one time obtained at profits of 100 per cent and at another of 5 percent.
My approximation to you on the subject of value only consists in a greater disposition to reject commodities in general, as a measure, and refer only to those where the cost of production including profits seems to continue most nearly the same. Torrens’s is a cleverly written work, and on the whole I think, almost as much in my favour as yours. But he is still infested with the heresy of attempting to account for prices and profits without reference to demand and supply on which every thing really depends. Tell me if I have made myself understood.
T R Malthus