On no subject that we have been lately discussing have we so materially differed as on the one now occupying our attention. Your position, if established, would, I think, overturn both your theory of rent and population, for I understand you to maintain that the higher the price of corn rises, in consequence of more men being employed on the poorer land, the greater will be, not only the surplus produce after paying the labourers, but the ratio of that surplus produce to the whole capital employed on the land. If this be true there is no check to the increase of population, and food can be increased in a ratio exceeding that at which mankind increase. Your statement requires that with every additional labourer not only an equal increase but a greater increase of surplus produce should be obtained. More labourers may then be employed without limit, and rent and profit together must not only increase, but increase in a geometrical progression. I am sure I am correct in thus stating your proposition, because if as you say the whole corn expense of production per quarter will be diminished with every rise of price, the surplus must increase in a geometrical ratio with the capital employed. If you meant only that the surplus produce would increase with every acc.u.mulation of capital on the land, though in a diminishing ratio to the capital employed on the land, that is not only advanced, but strenuously maintained as the groundwork of my theory, and is the basis also on which my table is formed. You have misapprehended a pa.s.sage in my last letter. I certainly never said, nor ever thought, that any good reason could be given for an increased number of men being required to produce precisely the same quant.i.ty of corn from precisely the same land. What I said was that, if at one period the number of labourers required to produce ten millions of quarters of corn was two-and-a-half millions of men, and at another, in consequence of increased demand, fifteen millions of quarters could not be produced with a portion of worse land at a less cost of labour than that of four-and-a-half millions, at this latter period a production of ten millions would require three millions of men, because fifteen is to four-and-a-half as ten to three, and if we supposed the price of corn under such circ.u.mstances to increase in the proportion of 2-1/2 to 3, a supposition much more favourable to your view of the question than we should be obliged to concede, yet that it would not support the conclusions to which you arrive, but, on the contrary, would prove my theory to be the correct one. If the calculation had been made, as you think would have been more correct, on an increase from ten millions to ten-and-a-half millions, the result would have been the same, but we should be puzzled with the decimals or fractions which must be employed on such a supposition. I agree with you 'that the natural price of corn depends entirely upon the price of the last addition, and it does not matter whether with regard to the old land a capital yields 50 per cent. rent and profit or 20 per cent. In either case the price of corn on such land has nothing to do with the cost of production.' I do not see how the admission of this fact can a.s.sist your argument, which relates only to the ratio of the surplus produce to the whole capital employed.

I cannot conceive by what argument you could shew that it might be possible that the addition of another labourer on the land would not pay his expenses, although not more than a quarter of the population were employed upon the land. Allowing, as I most fully do, that no pressure can destroy rents, yet as the last portions of capital employed on the land pay no rent, it is to me inconceivable that there would be no inducement to employ more labourers whilst their average production should be three times more food than they could themselves consume. If the whole of this surplus, after maintaining in the most frugal manner the owners of stock, were absorbed by the landlords as rent, they would increase their revenue, and employ more labourers on the land, if any among them saved any part of his income and lent it at the common rate of interest. I am sorry you do not come to town for the next club.

Yours truly, DAVID RICARDO.

XXIX.

LONDON, _27th March, 1815_.

MY DEAR SIR,

No particular event which I recollect ever occasioned so great a gloom as the late lamentable reverse. At present we have the most dismal forebodings of war and its consequences on our finances; the truth is our courage is not screwed up to the proper pitch; like everything else, we shall be easy under our new situation in another fortnight. I am glad, however, to turn my attention to other subjects.

I have observed in the bullion pamphlet[97] that many who say they consider money only as a commodity, and subject to the same laws of variation in value from demand and supply as other commodities, seldom proceed far in their reasoning about money without showing that they really consider money as something peculiar, varying from causes totally different from those which affect other commodities. Do you not fall into this error when you say, 'In the first place all depends upon the relation between corn and other commodities, and, as labour and corn enter into the prices of all commodities, the difference between corn and other commodities cannot possibly increase in any proportion to the increase in the money price of corn'? If money be a commodity does [_sic_] not corn and labour enter into its price or value? And, if they do, why should not money vary as compared with corn and labour by the same law as all other commodities do? As far as this question regards the importation of corn, you are much more interested than I am in maintaining the uniform value of commodities, because if the rise of the price of corn and labour will as you contend raise the price of our commodities, this is an additional reason why we should not impose restrictions on the importation of corn, as it will subject us to a decided disadvantage in our compet.i.tion with foreigners for the sale of our commodities.

Not however to dwell on this very essential point, I agree with you that a rise in the price of corn occasions a different distribution of the produce from the old land. It does this by lowering profits. Instead of a manufacturer having it in his power to maintain a servant or mechanic who may contribute to his enjoyment, that power will be transferred to the landlord, and this will arise from the lower corn value of manufactured goods. Indeed I see no limit to the fall of the corn value of goods but the impossibility of manufacturing them with any the least return of profit, and this will not happen till the landlord has appropriated to himself in the form of rent nearly the whole surplus produce of the land. It appears to me that the progress of wealth, whilst it increases acc.u.mulation, has a natural tendency to produce this effect and is as certain as the principle of gravitation.

You have, I think, totally changed your proposition. You before contended that, in consequence of increasing wealth and the cultivation of poorer land, the whole _corn_ cost of production on the land would bear a _less_ proportion to the whole _corn_ produce; but now you say that the _money_ cost of production on the land will bear a less proportion to the _money_ value of the whole produce. Between these propositions there is a very material difference, as the latter might be true at the very time that the former was false. To admit what you now contend for would not affect my theory, as, though it would prove that the landlord and tenant (together) got more money revenue, or, if you will, a greater proportion of money revenue as compared to the money capital employed, yet the tenant might and I think would get a less proportion, and therefore the rate of profits would fall. Such a state of price [_sic_] is quite compatible with a greater proportion of men, as compared with the produce obtained, being employed on the land; but it is wholly irreconcileable with the net corn produce bearing a larger proportion to the gross corn produce, which was the principle before contended for. I agree with you that the increased price of corn in the order of things is rather a cause than a consequence of a greater than the usual number of men being employed to obtain the same quant.i.ty of produce from new land, because profits from such an employment of capital may be higher than other profits; but this difference of profit may be owing to a general fall in the rate of profits on other concerns rather than to the actual elevation of the profits on land; and I am of opinion that a rise in the price of corn always lowers general profits by increasing wages. I can in no way satisfy myself that general profits can rise with a rising price of corn and fall with falling prices, unless they are raised or lowered by diminishing or increasing wages, and then they can be but of short duration. In the ordinary course of things, as a high price of corn attends a state of progression, wages of labour will be really high, and profits cannot rise because of wages being low.

I am decidedly of opinion that Torrens[98] has treated you unjustly in his remarks in the preface of his book. If I recollect, you acknowledged an alteration in your opinion respecting the corn laws, since you wrote your essay on population, in your 'Observations on the Corn Laws.' I think too that you have always held the opinion you now do that the difference between the value of gold and paper was partly owing to the rise of the value of gold. Is not his criticism very much strained as to the use of the word depreciation? But, if he be right in all, the instances are much too few to justify his severe observation. At the Geological Club[99] his book was spoken of the other day with great approbation. Mr. Blake[100] and Mr. Greenough[101] think that he has exhausted the subject, and that his arguments cannot be controverted. I should think that he is very generally read. 'If I would lay a tax on foreign corn,' you ask, 'on account of a tax on our own, does not the same principle apply to the indirect taxes that raise the price of labour?' I think not, because a tax on corn will raise the price of corn twice, once on account of the tax, and a second time on account of the rise of wages; but, as this second rise is common to all things in which labour enters, and will be corrected by a new value of money, it will not be of long duration. The indirect taxes which only raise the wages of labour produce, I think, the same effects as the second rise in the price of corn, of which I have just been speaking. Whenever a tax bore with unequal effect on the land, when it did not affect labour bestowed in other employments, a countervailing duty on importation should, I think, be also imposed. I fear I cannot be with you on Sat.u.r.day. If you do not hear from me by Wednesday's post, conclude that I cannot leave home....

Ever yours, DAVID RICARDO.

NOTE.--Robert Torrens, the soldier economist, began his literary career with 'The Economist Refuted' (1808), in answer to William Spence, who in 1807 tried to persuade his countrymen that Napoleon's blockade mattered little to them, Britain being 'independent of commerce.' In the winter of 1810-11, Torrens was Major Commandant of the Royal Marines, doing garrison duty on the island of Anholt in the Kattegat. The frost gave him time to re-read his Adam Smith and write his 'Essay on Money and Paper Currency' (publ. 1812). In his 'Essay on the External Corn Trade' (see above, page 65), Torrens characterizes the writings of Malthus as suggestive and candid and full of 'facts,' but ill-reasoned and inconsistent. Mr. Malthus, he says, scarcely ever embraced a principle which he did not subsequently abandon; his Essay on Population was a plagiarism from Wallace; and he refuted it himself by introducing the influence of Moral Restraint; in regard to Corn Bounties and in regard to the Currency, his later writings have contradicted his earlier. (Pref.

pp. viii. to xii.) Torrens compared the Political Economy of Malthus with that of Ricardo, greatly to the advantage of the latter, in his 'Production of Wealth' (1821). See 'Malthus and his Work,' pp.

265-6. Compare also Note to Letter XLIV.

x.x.x.

LONDON, _4 April, 1815_.

MY DEAR SIR,

You think that my theory of a diminishing rate of profit in consequence of being obliged to cultivate poorer lands is affected by my admission that there will be a greater quant.i.ty of surplus produce and a greater money value from the old land. This would be true if any part of either the additional quant.i.ty or additional value belonged to the owner of stock. You, however, expressly say that this additional value or quant.i.ty 'will remain to the farmer and landlord.['] Before my theory is affected it must be shown that the whole will not remain with the landlord, as, if the farmer gets no share of it, his rate of profits cannot be raised.

I agree with you that, when the exchangeable value of corn rises, 'the whole quant.i.ty of corn in the country will exchange for a greater number of coats than before, and consequently that there will be both the power and will to purchase, with the raw produce of the country, a greater quant.i.ty of manufactured and foreign commodities.' In a progressive country I can easily conceive this power and will to be doubled or trebled, as well as the commodities on which they are exercised; but this admission does not affect the question of profits. There may be a great demand for home and foreign commodities without their price being permanently raised, as no new difficulties may attend their production.

When America becomes populous and wealthy in the same proportion as the most wealthy country of Europe, will not her corn exchange at a higher value both for money and commodities, although it will have much increased in quant.i.ty? Will not all foreign and home commodities in America be double or treble their present amount, yet will not the profits of stock be less there than they now are? On this question I could not have thought that the slightest doubt could exist; all theory, all experience is in favour of this opinion.

Whilst the labour of ten persons employed on land paying no rent can produce one hundred quarters of wheat, it appears to me possible and probable that one-third more labour might profitably be employed on that land, not indeed in producing only one hundred quarters of wheat, but an additional quant.i.ty more than the additional labourers would consume.

Whilst the labour of ten men can produce one hundred quarters of wheat, it is difficult to suppose profits only ten per cent., and more difficult to conceive that many more men might not be profitably employed in increasing the produce off such land. In theory, land which yields no rent, according to your supposition, would have more and more capital profitably expended on it, whilst the additional quant.i.ty of produce obtained exceeded [the] quant.i.ty paid to the additional labourers. Capital [might] be so expended, whilst the profits of stock gave any return, not ten per cent. but one per cent. or a half per cent.

No doubt money varies more slowly than other commodities for the reason you mention; nevertheless its value, like every other foreign commodity, depends on the labour and expense of bringing it to market.

I expect some friends to dine with me on Sat.u.r.day, and on Monday I am engaged out to dinner; yet, if the weather is tolerably fine, I will be with you by the time you leave chapel on Sunday, but I must get home next day. If this is not quite convenient, pray let me know.

Ever yours, DAVID RICARDO.

x.x.xI.

LONDON, _17 April, 1815_.

MY DEAR SIR,

You, I think, agree with Mr. Torrens that a rise in the price of corn will be followed by a rise in the price of home commodities; but your theory requires that there should be no rise in the price of those commodities on which the wages of labour are expended, for, if they rose in the same proportion as corn, there could be no fall in the corn wages of labour. Is it not, however, very improbable that all manufactures should rise at home, and yet that those on which [the wages of] labour are expended should not rise? Is not the price of soap, candles, etc., though foreign commodities[102], necessarily affected by the rise in the price of those home goods which are given in exchange for them. Mr.

Torrens' theory, however, on this part of the subject appears to me defective, as I think that the price of commodities will be very slightly affected either by a rise or fall in the price of corn. If so, every rise in the price of corn must affect profits on manufactures; and it is impossible that agricultural profits can materially deviate from them. I will, however, suppose that you and Mr. Torrens are correct, and that commodities do rise in price with every increased price of corn.

The value of fixed capital as well as of circulating capital employed on the land will then rise also; and, although the money value of the produce should be increased on the old land, it will still bear the same proportion to the money value of the capital employed; and, as this produce will be divided in different proportions between the landlord and the farmer, the rate of profits of the latter will fall. For the purpose of examining the effects, let us suppose that all commodities rise, with the rise of the price of corn, excepting those only on which the wages of labour are expended, and that in consequence the corn wages of labour fall. Suppose the price of corn 4, and that on the old land the labour of eight men was necessary to raise eighty quarters of corn, that no rent was paid, and that each labourer had eight quarters annually for his wages, of which one half was expended on commodities.

The gain of the farmer, when the price was 4, would be 64 or sixteen quarters, and, besides his fixed capital, horses, seed, etc., he would require the value of sixty-four quarters, or 256, to pay the annual wages of his labourers; consequently his profits would be in the proportion of 25 to 100 of wages, for 256:64::100:25. Now, suppose corn to rise to 4 10_s._, wages would vary only 10_s._ on four quarters, and consequently would rise to 34 annually per man, or 272 on the old land; but the eighty quarters of corn would sell for 360, leaving a produce of 88 to be divided between farmer and landlord; and 88 would be to 272 as 32 to 100.

But on the new land the labour of eight men and a half might be required to obtain eighty quarters or 360; the labour of eight-and-a-half men would cost, at 34 each, 289; consequently the profit would be 71, which is to the whole expense of 360 as 197 to 100.

100 capital or expenses on the old land will yield 32 100 capital or expenses on the new land " " 197.

-------- Rent [1]23.

It appears then that the profit on new land, which regulates the profit on all other land, would be 197 per cent. when the price of corn was 4 10_s._ It was 25 per cent. when the price was 4.

If indeed under the same circ.u.mstances we had supposed the price of corn to rise to 6, then profits would be increased, and would be much more than 25 per cent.; but some adequate cause must be shown for [such]

rise, and it cannot be arbitrarily a.s.sumed. Your theory supposes too what is impossible, that the demand for manufactures [could] increase in the same proportion as the demand for [corn] at the very time that more men are employed on the land to obtain a less proportion of produce. The whole appears to me a labyrinth of difficulties; one is no sooner got over than another presents itself, and so on in endless succession. Let me entreat you to give my simple doctrine fair consideration, and you must allow that it accounts for all the phenomena in an easy natural manner.

I yesterday met Mr. Smyth[103], your friend, and Mr. Torrens at Mr.

Phillips'. I pa.s.sed a very pleasant day. Mr. Smyth was exceedingly agreeable. I like him very much. The corn question was occasionally introduced, and I had an opportunity of stating some of my objections to Mr. Torrens' theory. I have no reason to think that I convinced him. I defended the use of the word depreciation in the sense [in] which you had used it; and I believe I had every one with me. I fancy that his arguments in his book on currency are founded on the sense in which he uses the word. We spoke on the other points of difference between him and you. Mr. Smyth, Mr. Phillips, and Mr. Torrens have agreed to dine with me on Wednesday, which has induced me to write to you a day or two sooner than I otherwise should have done that I might express my wish that you would join us. If you will, we will dine as late as you please.

There will be a bed at your service, and I need not say that you will add considerably to my pleasure.

Yours very truly, DAVID RICARDO.

NOTE.--In many of his speeches, e.g. June 12, 1822, Ricardo refers to the ambiguity of the word 'depreciation'. He himself always uses it to indicate that the currency had fallen below its own standard, as e.g. when coins are clipped. Others used it of a change in the _value_ of the currency as purchasing a larger or a smaller quant.i.ty of goods. A currency might be depreciated in the first sense when it was actually, through counteracting causes, the opposite (or appreciated) in the second. Malthus, in Edinburgh Review, Feb. 1811, had used it in the first sense. (See pp. 341, 356, 365.) Torrens, in his 'Essay on Money,' 1812, had used it in the second. (See pp. 98, 99.) The word 'appreciation' occurs in Tooke's 'High and Low Prices'

(1823), Part I. p. 76. Tooke himself distinguishes depreciation of the Currency (the first of the above senses) from depreciation of Money (the second of them); (l. c. p. 8.)

x.x.xII.

LONDON, _21 April, 1815_.

MY DEAR SIR,

I was sorry you could not join our party on Wednesday. Mr. Smyth has left a pleasing impression on the minds of all those who met him, and I had every reason to confirm me in the favourable opinion which I had formed of him at our first meeting. Mr. Torrens is a very gentlemanly man. He had sent me his book on bullion before he came, and I fear that too much of the conversation was bestowed on the differences between his opinion and mine on the subject of paper currency and the exchanges. The latter he does not appear to me correctly to understand. I insisted on the consistency of your former and present opinions on the bullion question, and asked him from whence he had derived his knowledge of your views on that subject. He said that Dr. Crombie[104] and you had met purposely to discuss the question, and from him he had understood that you ascribed the whole effects on the price of bullion to the abundance of paper. He, as well as Monsieur Say, finds it difficult to support his opinions and answer objections in conversation--he says all such discussions should be carried on in writing....

On Sat.u.r.day I shall meet you at the King of Clubs, to which I am invited by Mr. Whishaw, and on Sunday I wish you and Mrs. Malthus will oblige Mrs. Ricardo and me with your company to dinner. If you can I will ask Mr. Whishaw and Mr. Smyth to meet you. Perhaps too you will breakfast with me on Sat.u.r.day or Sunday morning.