ricardo to malthus
[Reply to 462.—Answered by 467]
Gatcomb Park 11 Octr. 1821
My Dear Malthus
It is certainly probable that the fault is with me, in not understanding the propositions you submit to me, and it may arise, as you say, from my being too much prepossessed in favour of my own views; but I do not plead guilty to the charge of not giving the requisite degree of attention to the propositions themselves. You now say “Where have I made the supposition you impute to me? surely not in my last letter. My first supposition was that profits would be 100 per cent in the country where corn was obtained with double the facility, while it was 10 pct. in all others.” If you had done so, then indeed I should be justly chargeable with inattention, but these were your words in the letter which I was answering. “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 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:” not one word is said of profits being at a different rate in this country, and as you had said that in the great mass of nations profits were at 10 pct. I concluded that in this country also profits were supposed to be at 10 pct.. In this instance then you must acknowledge the fault was yours and not mine. You do indeed afterwards suppose that this single country exports its corn, and obtains the high price of other countries for it, and by such means raises its profits to 100 pct., but this evidently would depend on the fact whether she would get the price of other countries, or whether domestic competition would lower the price of corn in the countries to which it was exported, to the growing price of the exporting country.
This I now understand to be your case. If the country which raised its corn, with such great facility, were completely insulated from all other countries, you would probably allow that corn, in that country, would be cheap in proportion to the facility of producing it. You would allow this also if all other countries were determined to protect their own agriculture and absolutely refused to import foreign corn. But in the case of a free trade, then you think the price would rise in the exporting country to the level of the price of other countries, and consequently profits would be enormously high. If I could admit the fact of a high price, which I cannot do, I should adopt your conclusion—I should say that general profits would be higher than they had been before the rise in the price of corn. Rents would undoubtedly be higher for the landlord would have at least the same portion of corn as before, and that portion would be greatly enhanced in value. Labour would be higher, because the labourer would require higher money wages when corn was doubled in price. And profits would be higher because the capitalist would have more corn than before at the same time that it bore a higher price. All these classes would be benefited by the high relative value of corn to manufactured commodities, and the capitalist more particularly so, because amongst those manufactured commodities are to be found some of the necessaries of the labourer, and therefore by the payment of a less portion of corn to the labourer he would still have the command of an increased quantity of food and necessaries for himself and his family. The question then between us is, would the price of corn rise permanently, or would it not, in the country which continued to possess the great facility of producing it?
There is only one case in which I think such a rise possible, and that is on the supposition that the whole capital of the country was employed in producing corn, and yet could not produce it in sufficient quantity to satisfy the demand of other countries. In that case corn would be at a monopoly price, in the same manner as those rare wines which can only be produced in particular districts are at a monopoly price, because competition could not have its full effect. In the article of corn it would be limited by the scarcity of capital, which gave to the growers of corn large profits, in the same way as the East India Company or any other Company might make large profits. In the article of wine the price would be augmented by the scarcity of the land on which the grapes were grown, and would chiefly go to the landlord in form of rent. But supposing no monopoly—supposing capital to be so abundant that all the corn demanded could be supplied, then I hold it to be demonstrable, that the price would sink to the growing price of it in the exporting country.
There is however another point on which we differ—you say a striking approximation to this actually exists in the case of America,—the only difference is that the demand for labour has awarded a larger quantity of corn to the labourer, the effect of which has been to keep the rate of profit comparatively low. But you surely do not mean that the exchangeable value of the commodities exported by America are in the least degree affected by the quantity of corn awarded to the labourer. I do not think you are justified in your expectation that in consequence of the accumulation of capital in America any commodity should fall there until it ceased to possess the character of a monopolized commodity. Corn, and the bulky commodities of America (which latter are always regulated by the price of corn) could not fall until corn was sold at a price depending on the quantity of labour actually expended on its production, and not on the demand of other countries. When that time came it would cease to be a monopolised commodity, and would fall, as well as profits, to the fair competition rates. I deny that America comes at all within your supposed case, and the proof is that if you were to isolate America from all other countries, you would not lower her rate of profits, otherwise than by preventing her from receiving a supply of labour from other countries; but do the same thing to a country, circumstanced as you have supposed, and profits would immediately fall from 100 to perhaps 20 pct.. Your case in fact is that of a country possessed of a peculiar commodity in very general demand, and on which competition operates most feebly. We have often discussed this peculiar case, and have always agreed in our opinions on it. I confess however I am astonished to hear you say that this is the case of America—you might with as much reason contend that it was also the case of Russia, of Poland, of the Cape of Good Hope, of Botany Bay. If indeed America could send her produce from the interior to Europe without expence, and if the ports of all countries were open freely to receive the corn with which America could under the circumstances I have supposed, supply, then I should say the cases were similar, but with the enormous expences of sending corn from the interior of the country, America can really produce a very inconsiderable supply to Europe at an expence much less than Europe can grow it. You ask what can entitle me to suppose that corn will be at half the price in America that it is in other countries, and then argue on that supposition so contrary to the fact. I answer I did not apply my argument to America, but to your case which supposed a country to produce corn with half the labour which was required to produce it in other countries. If America can do this, then I apply it to America. You complain that I do not reason fairly with you, that my theory requires labour to be low in America, but you dispute my theory and refer to the actual state of things in America where labour is high, and yet I contend that I have a right to suppose labour low. I was dealing with your case, and not with America. With respect to America I am not in possession of the facts of her case, and I cannot admit that my theory requires the price of labour to be low in that country. It requires rent to be low, for without that there cannot be a great surplus produce to divide between the two other classes, after satisfying the landlord. You will always make me say, that profits depend on the low price of corn—I never do say so, I contend that they depend on wages, and although in my opinion wages will be mainly regulated by the facility of obtaining necessaries, they do not entirely depend on such facility. You wish to confine me to that theory, but I reject it,—it is none of mine, and I have often told you so. I think I do shew that your fact does not invalidate my theory which you say I am bound to do, and I do not assume a different fact than the one you refer to in order to refute you. Surely it is fair to say “for such and such reasons your conclusion is not correct, but my argument would have been still stronger against you, if, as I have a right to suppose, labour in such a country were cheap, because the necessaries of the labourer are there obtained with facility.”
In a country situated as you suppose America to be I do not see what is to make her corn rise; it is already, according to your argument, at a monopoly price, and cannot rise above that price, unless there should be a greater demand, and a higher price in Europe, which you say regulates the price in America; or unless America should become so populous that the price of her corn should be regulated by the expence of growing it, as in other countries, and that expence should exceed the present expence in Europe. If your theory be correct, this may not happen in 150 years, notwithstanding the greatest accumulations of capital; but will not labour fall during all that time? If it does fall, then the mean between corn and labour will fall. But suppose the other case, suppose the COST price of corn in America should rise above the present cost price in Europe, is it conceivable that labour should fall under such circumstances—to me it appears impossible, unless we suppose money to alter in value. In this case then also the mean between corn and labour would vary in value.
If hats were produced under the same circumstances as money they would not fall in price in consequence of a fall of profits. If hats were produced by the employment of capital, and money were produced, as you suppose, without any capital, then I allow, and have said so in my book, hats would fall in price with a fall of profits—but I say again that too much importance is attached to money—facility of production is the great and interesting point. How does that operate on the interests of mankind?
You ask what is to become of the money before produced in a country which should grow its corn with 10 pct. profit if it had its facility of producing corn doubled, and profits were to rise to 100 pct.: you ask further whether she would not continue to produce money as well as other commodities as the profits of producing it would be also 100 pct.. If the facility of producing corn were doubled a great deal of labour would be employed on other things, and therefore the corn and commodities of the country would altogether be of as great a money value as before, and would require the same quantity of money to circulate them. With respect to the production of more money, that would depend on the demand for it, and the prices of other things. I think the production of money would continue as before, but it is quite possible that there might be less encouragement to produce money than other things, and therefore capital might afford 100 pct. profit in all employments except that one. I wonder you should refuse to assent to this obvious conclusion. You say it is your opinion that if labour were to fall in consequence of improvements in Agriculture before an increase of population had taken place, it could only be from glut and want of demand. Is this opinion consistent with another which I think you hold, and in which I agree, that one of the regulators of the price of labour is the price of the necessaries of the labourer?
I have mentioned my suspicions respecting the writer of the article on population in the Edin. Review to several persons—I will not utter them from this time.—I hear nothing about Murray and Place. I hope your visit at Holland House was an agreeable one. Mrs. Ricardo unites with me in kind regards to Mrs. Malthus—we are all well and are leading gay lives, one week at Worcester Music meeting and Bromesberrow, another at Bath &ca..—
Ever truly Yours