[Addressed to Penr[h]yn Arms, Bangor, North Wales.]

LONDON, _26 June, 1814_.

MY DEAR SIR,

... I cannot partake of your doubts respecting the effects of restrictions on the importation of corn in tending to lower the rate of interest. The rise of the price or rather the value of corn without any augmentation of capital must necessarily diminish the demand for other things even if the prices of those commodities did not rise with the price of corn, which they would (tho' slowly) certainly do. With the same capital there would be less production and less demand. Demand has no other limits but the want of power of paying for the commodities demanded. Everything which tends to diminish production tends to diminish this power. The rate of profits and of interest must depend on the proportion of production to the consumption necessary to such production,--this again essentially depends upon the cheapness of provisions, which is after all, whatever intervals we may be willing to allow, the great regulator of the wages of labour. Nothing can tend more effectually to diminish the demand abroad for our manufactures than to refuse to import corn and other commodities which we [had] usually taken in exchange for such manufactures. If we rigorously refused to import any [foreign] commodity whatever, I firmly believe that we should soon cease to export any commodity, even if we made gold an exception to the general rule. Our money would stand at a higher level than in other countries, but there are limits beyond which it could not go. All trade is at last a trade of barter, and no nation will long buy unless it can also sell,--nor will it long sell if it will not also buy. If by adopting such policy [_sic_] a country were to enhance the value of the raw materials which it consumed, of which corn is the princ.i.p.al, it would thereby lower the rate of interest. If otherwise, it might be deprived of many luxuries and many comforts, or might enjoy them in less abundance, but the rate of interest would not fall. This is a repet.i.tion, you will say, of the old story, and I might have spared you the trouble of reading at 200 miles distance what I had so often stated to you as my opinion before; but you have set me off, and must now abide the consequences. I never was more convinced of any proposition in Political Economy than that restrictions on importation of corn in an importing country have a tendency to lower profits. Remember me kindly to Mrs. Malthus.

Yours very truly, DAVID RICARDO.

XVI.

GATCOMB PARK, NEAR MINCHIN HAMPTON, GLOUCESTERSHIRE, _25th July, 1814_.

MY DEAR SIR,

I am writing to you from Gatcomb, where I arrived with S---- as my companion yesterday afternoon. To enable me to quit London at the time I did I was obliged to bestow an unusual degree of attention to business of all sorts, and, though I had written a letter to you in answer to your last before I left Brook Street, I was so dissatisfied with it that I could not resolve to send it. I shall, I fear, succeed no better now, but you shall have it whatever it may be, as, if I defer writing any longer, you may have quitted Bangor before my letter arrives there[61].

It appears to me that you have changed the proposition on which we first appeared to differ. The proposition advanced by you, if I recollect right, was that restrictions on the importation of corn would not lower the rate of profits and interest, but now you add--or rather your argument leads to that conclusion,--'if the consequence of such restriction be a great reduction of capital.' So amended I should not object to the proposition,--but I think it material that causes should be kept distinct, and their due effects ascribed to each. Restrictions on the trade of corn, if capital suffers no diminution, will occasion a fall in the rate of profits and interest. A reduction of capital independently of restrictions on importation of corn will have a tendency to raise profits and interest,--but there is no necessary connection between these two operating causes, as they may at the same time be acting together or entirely in opposite directions. Effective demand, it appears to me, cannot augment or long continue stationary with a diminishing capital; and your question why if this were true profits rise at the commencement of a war? does not, I think, bear any connection with the argument, because profits will augment under a diminution of capital and produce, if demand though diminished does not diminish so rapidly as capital and produce. For the opposite reason profits will diminish when capital and produce increase. This is totally independent of the rate of production, and often, I think, may counteract the effects which usually follow, and in the long run will almost always follow, from increasing or diminishing capital. You say that 'the proportion of production to the consumption necessary to such production seems to be determined by the quant.i.ty of acc.u.mulated capital compared with the demand for the products of capital, and not by the mere difficulty and expense of procuring corn.' It appears to me that the difficulty and expense[62] of procuring corn will necessarily regulate the demand for the products of capital, for the demand must essentially depend on the price at which they can be afforded, and the prices of all commodities must increase if the price of corn be increased. The capitalist 'who may find it necessary to employ a hundred days' labour instead of fifty in order to produce a certain quant.i.ty of corn' cannot retain the same share for himself unless the labourers who are employed for a hundred days will be satisfied with the same quant.i.ty of corn for their subsistence that the labourers employed for fifty had before. If you suppose the price of corn doubled, the capital to be employed, estimated in money, will probably be also nearly doubled,--or at any rate will be greatly augmented; and, if his monied income is to arise from the sale of the corn which remains to him after defraying the charges of production, how is it possible to conceive that the rate of his profits will not be diminished? I hope you continue to enjoy yourself amidst the wild scenery with which you are encompa.s.sed.--The weather here is delightful, and I am as happy as I can be, separated from the whole family (except S----) and surrounded by upholsterers, carpenters, etc....

Yours very truly, DAVID RICARDO.

I believe that in this sweet place I shall not sigh after the Stock Exchange and its enjoyments.

XVII.

GATCOMB PARK, _11 Aug., 1814_.

MY DEAR SIR,

I received your letter last Sunday, and in the evening of that day Mrs.

Ricardo and the rest of my family arrived here. I have been showing them all the beauties of this place, and my time has been pretty well engrossed by them these three last days.... The fall in Omnium is I believe to be attributed to our continued expenses, and the expectation of another loan before the payments on the present are completed. The present state of the Exchanges seem[s] to indicate a real fall in the value of foreign currencies; it cannot be attributed to any change of taste for particular commodities, or any other caprice. I expected that Peace would lower the value of foreign currency, but I confess not in the degree which has taken place. It leaves the question between us undecided--namely, whether the exchange is not operated upon solely by the relative preponderance of currency. Peace has rendered the currency of the continent much more efficacious to the business to be done.

With regard to our present question, we differ as to effects which must _necessarily_ follow from restrictions on the importation of foreign corn. I do not think that a diminution of capital is a _necessary_, but a probable effect. We agree as to the consequences which will attend a diminution of capital, but I should say that a real diminution of capital will diminish the work to be done, and consequently will affect the wages of labour, and the demand for food. In the case supposed, restrictions on importation of corn, encouragement is given to the further cultivation of our own land,--but _if_ accompanied by a diminution of capital a discouragement is also given to the cultivation of the land, and whether profits rise or fall must in my opinion depend upon the degree of these contra-operating causes. It is true that the woollen or cotton manufacturer will not be able to work up the same quant.i.ty of goods with the same capital if he is obliged to pay more for the labour which he employs, but his profits will depend on the price at which his goods when manufactured will sell. If every person is determined to live on his revenue or income, without infringing on his capital, the rise of his goods will not be in the same proportion as the rise of labour, and consequently his percentage of profit will be diminished if he values his capital, which he must do, in money at the increased value to which all goods would rise in consequence of the rise of the wages of labour. In such case I should say that the effective demand had diminished, because the same quant.i.ty of commodities could not be annually consumed. If the same quant.i.ty of commodities continued to be consumed, then it must be evident that it would be at the expense of capital. In such case capital would diminish faster than demand, which would tend to keep up profits. But how long will [people] continue to indulge in luxuries at the expense of a continual diminution of capital? It is the road to ruin, and, though frequently persisted in by a few individuals, it is not often found to be the folly of nations. On the contrary, if any causes interrupt the progress of nations, if restrictions on their trade, or expensive wars, tend to diminish their capital, at such times more economy is practised, and, as Adam Smith has observed, the profusion of governments is counteracted by the frugality of individuals. If so, I cannot be incorrect in saying that, though for a short period capital and produce may diminish faster than demand,--yet in the long run effective demand cannot augment or continue stationary with a diminishing capital. You say, what I did not before understand you to admit, 'that the whole amount of demand will from advanced prices diminish of course, but the proportion of demand to supply, which is always the main point in question, as determining prices and profits, may continue to increase, _as it does in all countries the capital of which is retrograde_;' but I do not agree even to this explanation, and it appears to me to be at variance with an opinion which I have often heard you express, viz. The temptation to save from revenue to augment capital is always in proportion to the rate of profits, and, if from acc.u.mulation of capital profits and interest should fall very low indeed, at that point acc.u.mulation would nearly stop, because it would be almost without an object. In this opinion I most cordially agree, and I cannot help thinking that it is at variance with the above sentence which I have quoted from your letter. I maintain, as I think you have done, that consumption as compared with production is always greatest where capital is most acc.u.mulated. Diminish the capital of England one half, and you undoubtedly augment profits, but it will not be in consequence of a greater proportion of demand but of a greater proportion of production; demand as compared with production could hardly fail to diminish. Individuals do not estimate their profits by the material production, but nations invariably do. If we had precisely the same amount of commodities of all descriptions in the year 1815 that we now have in 1814, as a nation we should be no richer; but, if money had sunk in value, they would be represented by a greater quant.i.ty of money, and individuals would be apt to _think_ themselves richer. I shall be in town either next week or the week after. I wish you would return here with me. We would discuss these important points in our shady groves. With kind regards to Mrs. Malthus,

I am, yours truly, DAVID RICARDO.

XVIII.

GATCOMB PARK, MINCHIN HAMPTON, _30th Aug., 1814_.

MY DEAR SIR,

I left London on the 19th, the day before your letter arrived there, having dispatched all my business in four days. The appearance of the Omnium was not sufficiently inviting to induce me to protract my stay longer than was absolutely necessary. David[63], who is come to pa.s.s his holidays with us, brought me your letter. I regret that I shall not see you for some time, as you cannot come here, and I shall not have it in my power at present to visit Hail[e]ybury. I expected to have a great deal of leisure time in the country, but as yet I have not had any.

Walking and riding with my family, and friends who have visited us, have entirely occupied me; besides which, the only room in my house which is not finished is the library, owing to the tedious time which they have taken to fix my bookcases.

I think if we could talk together we should not _very_ much differ on the question which has lately engaged us; our princ.i.p.al difference is about the permanence of the effects. It will often happen that the scarcity of a commodity or the increasing demand for it will for a time increase profits; but it is not therefore correct to say that, where profits are high, they are so because the demand for produce is great compared with supply. There are many other causes which will occasion profits to be permanently high. There may be two countries, in one of which, from bad government and the consequent insecurity of property, or from the little disposition to saving in the people, profits may be permanently high and interest at 12 per cent., whilst in the other, where these causes do not operate, profits may be permanently low and interest at 5 per cent. It would surely be incorrect to say that the cause of the high profits was the greater proportion of demand for produce, when in both countries the supply would be or might be precisely equal to the demand and no more. In America profits are higher than in England, and yet I can have no doubt that the proportion of supply to demand is greater in the former country. I think it must necessarily be so in all countries which are most rapidly increasing in riches, for from whence do riches come but from production preponderating over consumption? Profits are sometimes high when corn is scarce and dear; but this arises from the stimulus which the high prices give to industry. If the population could immediately accommodate itself to the scanty supply, no such effects would follow; and in fact they only continue till time has gradually equalised them.

I sometimes suspect that we do not attach the same meaning to the word 'demand.' If corn rises in price, [you] perhaps attribute it to a greater demand. I should [attribute it to] a greater compet.i.tion. The demand cannot, I think, be said to increase if the quant.i.ty consumed be diminished, although much more money may be required to purchase the smaller than the larger quant.i.ty. If it were to be asked what the demand was for port-wine in England in the years 1813 and 1814, and it were to be answered that in the first year she had imported 5000 pipes, and in the next 4500, should we not all agree that the demand was greater in 1813? Yet it might be true that double the quant.i.ty of money was paid for the 4500 pipes.

Have you read the report of the Lord[s'] Committee on the Corn question?

It discloses some important facts; but how ignorant the persons giving evidence appear to be of the subject as a matter of science! The Editor's remarks too are very unworthy of his paper.

... With best compliments to Mrs. Malthus,

I am, yours truly, DAVID RICARDO.

NOTE.--The 'Editor' was Lord Hardwicke, who moved for the Committee 10th June, 1814, and presented its report to the House on 23rd Nov.

1814. See Hansard, under date Feb. 17, 1815, p. 796; Ann. Register 1815, Gen. Hist. p. 130. The reports were 'ordered to be printed'

25th July, 1814. The first was on a single sheet, and was simply a complaint that the Committee could not take evidence; the second reported that they had heard evidence, but thought that before any certain conclusions could be reached the inquiry must go on further.

There is a copiously annotated copy of them in the 'Place'

Collection in the British Museum.

XIX.

GATCOMB PARK, _16 Sept., 1814_.

MY DEAR SIR,

... I agree with you that, when capital is scanty compared with the means of employing it, from whatever cause arising, profits will be high. Whether temporarily or permanently must of course depend upon whether the cause be temporary or permanent. It is, however, very important to ascertain what the causes are which make capital scanty compared with the means of employing it, and how far, when ascertained, they may be considered temporary or permanent.

It is in this inquiry that I am led to believe that the state of the cultivation of the land is almost the only great permanent cause. There are other circ.u.mstances which are attended with temporary effects of more or less duration and frequently operate partially on particular trades. The state of production from the land, compared with the means necessary to make it produce, operates on all, and is alone lasting in its effects.

We agree too that effectual demand consists of two elements, the _power_ and the _will_ to purchase; but I think the will is very seldom wanting where the power exists, for the desire of acc.u.mulation will occasion demand just as effectually as a desire to consume; it will only change the objects on which the demand will exercise itself. If you think that, with an increase of capital, men will become indifferent both to consumption and acc.u.mulation, then you are correct in opposing Mr.

Mill's idea[64], that in reference to a nation supply can never exceed demand; but does not an increase of capital beget an increased inclination for luxuries of all descriptions? and, though it appears natural that the desire of acc.u.mulation should decrease with an increase of capital and diminished profits, it appears equally probable that consumption will increase in the same ratio. Exchanges will be as active as ever; the objects only will be altered. If demand _appears_ more active where capital is scarce, it is only because the _power_ to purchase is comparatively greater. Wherever capital is scanty, the necessaries of life are cheap, if the country is commonly fertile; and, as capital and population increase, the necessaries of life rise in price, and thus is the power of purchasing, though really greater, comparatively less. In a country with little comparative capital, the value of the yearly produce may very rapidly increase; and, if it be said to be in consequence of the greatness of demand, I should contend that in such country the demand would not be limited in the same degree by a want of power as in a country abounding in capital, and merely because provisions would not rise in the same proportion in the two countries. If half as much corn [again] as usual were produced next year, a great part of it would undoubtedly be wasted; and the same might be said of any commodities which we might be ingenious enough to name: but the real question is this--If money should retain the same value next year, would any man (if he had it) want the will to spend half as much again as he now does? and, if he did want the will, would he feel no inclination to add the increase of his revenue to his capital and employ it as such? In short, I consider the wants and tastes of mankind as unlimited. We all wish to add to our enjoyments or to our power.

Consumption adds to our enjoyments, acc.u.mulation to our power, and they equally promote demand.

Mrs. Ricardo and I are going this morning to Cheltenham, which is eighteen miles distant from us; we shall return to-morrow.

Mr. Smith[65], whom I met at your house, lives about nine miles from here.

... I hope you recollect that we are not quite twenty-eight miles from Bath. You and Mrs. Malthus might, I think, give us the pleasure of your company for a few days during your Christmas vacation[66], and might at the same time visit your friends; but as you have seen them so lately you would give us great pleasure if you would give us the whole of your time. Mrs. Ricardo, who is standing by me, has made me express myself in a more than usually bungling manner. She unites with me in kind regards to Mrs. Malthus.

Yours very sincerely, DAVID RICARDO.