ricardo to malthus
[Reply to 459.—Answered by 462]
[Gatcomb Park, 28 Sept. 1821]
My Dear Malthus
The case you put to me appears to me to be an impossible one. How can all countries produce their commodities with the same quantity of labour; all, except one, produce their corn with the same quantity of labour also; and yet all, the one not excepted, have their profits on capital at the same rate? The one which you suppose to raise its corn with only half the quantity of labour required in the others, would, in all probability, obtain its labour at a much cheaper price, and consequently profits would be higher in that country.
If indeed a free trade should be established between all these countries, then their profits might be all nearly at the same rate, because the price of corn and necessaries, estimated in quantity of labour, would be nearly the same in all. In carrying on this supposed case we must be informed whether the country in which corn is obtained with comparatively little labour, can continue to obtain it on the same terms, after she is called upon to supply the markets of other countries; if she can, then the comparative prices of corn and commodities will be altered in all countries;—in the country producing the cheap corn, money will be rather at a higher level than before, and therefore corn rather dearer, but commodities generally will be at no higher price they will be indeed rather cheaper, because they will be imported from abroad, and from countries where the level of currency will be somewhat reduced, and therefore the cost price of commodities in those countries will be lower, and consequently they can be sold cheaper to the country importing them. Bulky commodities, and the price of labour, will only be raised in this particular country, because the level of currency will be somewhat raised—labour will in the real measure of value be rather lowered, that is to say, the portion of produce paid to the labourer, manufactured and raw produce, together, will probably be rather increased, but in consequence of free trade and a better distribution of capital, the proportion of the whole produce of a given capital which the labourers will receive will be diminished—his proportion will really be obtained with less labour.
The benefit to other countries cannot be doubted—corn and labour will fall very greatly in those countries, and consequently profits will rise, and as part of their exports in return for corn must in the first instance be money—the general level of currency will be reduced and commodities generally will fall, not because they can be produced cheaper, but because they are measured by a more valuable money. This is on the supposition that corn can continue to be produced with little labour in the excepted country, but suppose the increased demand for corn should oblige this country to cultivate poorer land, then the price of corn would rise from another cause besides the higher level of currency, and if this difficulty should be nearly as great as in other countries corn would be nearly as high, but while it could afford on any terms to export corn for commodities there would be previously to the importation of commodities an influx of the precious metals, and a higher level of currency. Without such higher level of currency commodities could never be imported from countries where they were before at the same price, and where they required the same quantity of labour to produce them. Your case is an impossible one, 1st.. because you suppose the profits in two countries to be the same, although the cost of producing necessaries in one of them be only one half of what it is in the other. 2dly.. you assume as a matter of course that with a free trade the price of corn in the exporting country would rise to the price of corn in the importing country, whereas it would fall in the importing country to the price in the exporting country, if its cost of production was not increased in that country, and if it rose it would rise only in proportion to the increased cost of production. When there is a free trade between countries it is impossible that profits can differ very much—the only cause of difference in such case will be the different modes of living of the labourers; in one country they may be contented with potatoes and a mud hovel, in another they may require a decent house and wheaten bread. You say “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” Domestic commodities are to fall because profits fall. If profits fell I do not see why domestic commodities should fall; but why should profits fall if corn and labour continued at nearly the same price—I know of no cause of the fall of profits but the fall of labour. You say ‘a striking approximation to this case actually exists in America, the only difference” you continue “is that circumstances in America have made labour high” but this is the only important feature in the case. I am however decidedly of opinion that if in America labour was very low and profits consequently much higher than they are, there would be very little fall in the domestic commodities of America.
I agree indeed with you that in the progress of the cultivation of America her corn must rise with the increased difficulty of producing it—this circumstance must have a tendency to reduce the relative quantity, or rather lower the level, of American currency, which will not fail by increasing the value of money to lower the value of those commodities in America which are too bulky to be exported. The commodities which America exports will not be similarly affected. Nothing is to me so little important as the fall and rise of commodities in money, the great enquiries on which to fix our attention are the rise or fall of corn, labour, and commodities in real value, that is to say the increase or diminution of the quantity of labour necessary to raise corn, and to manufacture commodities. It may be curious to develop the effect of an alteration of real value on money price, but mankind are only really interested in making labour productive, in the enjoyment of abundance, and in a good distribution of the produce obtained by capital and industry. I cannot help thinking that in your speculations you suppose these much too closely connected with money price.
I have read a very good critique on Godwin in the Edin. Review, and I am quite sure that I know the writer. It is very well done, and most satisfactorily exposes Godwin’s ignorance as well as his disingenuousness.
I cannot agree with you that in the progress of the cultivation of America a mean between her corn and labour will remain nearly at the same price as it now is, estimated in money or in hogsheads of claret; it will in my opinion rise. Let me take your own supposition. A country produces her corn with half the labour of another country, consequently she employs only half the capital in producing a given quantity . In this country corn will be at only half the price, at which it is in another; 100 qrs. will sell for £200, while in another it sells for £400. Suppose profits in both countries to be 20 pct., in one a capital of £166 will be employed in the raising of 100 qrs. of corn, in the other £333 will be so employed, and 20 pct. on each of these capitals will be on one £33 and on the other £66. To get £33 the one must have 16½ qrs. for his share of the 100 qrs., the other must have precisely the same quantity, and consequently 83½ quarters are paid in both cases for wages and other charges. But the farmer in the fertile country employs only half the labour that the other employs, and consequently with the same money wages each labourer will have the command of double the quantity of corn, he will have what you call double real wages.
Now suppose that in the progress of the fertile country it [does] at last arrive at the state in which it is necessary to [empl]oy £333 instead of £166 to raise 100 qrs. of corn, it is indeed possible, under the extravagant supposition with which we have commenced, that labour might continue at the same money price, but it is quite impossible that corn should not be doubled in money price, for twice the quantity of labourers at these uniform money wages would be required to produce it. If Corn doubles in price, and wages remain stationary, the mean between the two must necessarily rise, and consequently estimated in claret or in money, a mean between her corn and labour cannot as you say remain nearly the same. If, (as I had a right to suppose) labour in such a country was at a low money price, when corn could be produced with so much facility, the conclusion, when corn rose, would be much more in my favor.
I cannot allow that hats would fall in a progressive country because of a fall of profits. How can it be said that the cost of producing hats is reduced by a fall of profits, if a fall of profits must be accompanied by a rise of wages. Shew me that a fall of profits may take place without a rise of wages, in any fixed measure of value, and then I will yield this point. But you have no right to talk of a fall of profits, your case is that of a progressive country with low profits, and enormous wages. If of every 100 qrs. of corn, where it can be produced with little labour, 83 be given to the labourers, while no more is given in countries where double the quantity of labourers are employed to produce 100 qrs. of corn, you are bound to say that wages are enormously high. In my measure of value they would not be enormously high, but the commodity on which wages were expended would be extravagantly low,—at any rate we should both agree that profits in such a state of things would be very moderate.
It is hardly fair to tax you with so long a letter, and so soon too!