Ricardo and the Corn Laws: a Revision

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Ricardo and the Corn Laws: a revision

Samuel Hollander

I was delighted to observe in your book how forcibly you de- scribed the inexhaustible energies of this tight little Island. -HUTCHES TROWERto Ricardo, 9 November I817

I Perhaps the best-known feature of Professor J. A. Schumpeter’s fa- mous account of Ricardian economics in his History of Economic Analysis is the severe criticism of the so-called Ricardian Vice-“the habit of piling a heavy load of practical conclusions upon a tenuous groundwork, which was unequal to it yet seemed in its simplicity not only attractive but also convincing.”’ More specifically: His interest was in the clear-cut result of direct, practical significance. In order to get this he cut that general system to pieces, bundled up as large parts of it as possible, and put them in cold storage-so that as many things as possible should be frozen and “given.” He then piled one simplifying assumption upon another until, having really settled everything by these assumptions, he was left with only a few aggregative variables between which, given these assumptions, he set up simple one-way relations so that, in the end, the desired results emerged almost as tautologies. . . . The habit of applying results of this character to the solution of practical problems we shall call the Ricardian Vice.

SAMUELHOLLANDER is Professor of Economics at the University of Toronto. I. Schumpeter, A History ofEconomic Analysis (New York, 1954), p. 1171. 2. Ibid., pp. 472-3. See also pp. 541, 618, 653 n., 668. In his exhaustive new study of McCulloch, Professor O’Brien draws a sharp distinction between the procedures of his subject and those of Ricardo: “Ricardo was the abstractionist par excellence: and as a pure theoretician he has had very few intellectual equals.” By contrast, for McCul- loch, “abstract ideas on their own were of very little interest, it was their practical conclusions, taking account of peculiar circumstances, which were important to McCul- loch. He was sufficiently well informed of the facts to be relatively free from the ‘Ricardian Vice.’ ” Cf. D. P. O’Brien, J. R. McCulloch: A Study in CIassical Econom- ics (London, 1970), p. 403.

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A second and related feature of Schumpeter’s account-an illustration, as it were, of the Ricardian Vice-is his scathing criticism of Ricardo’s “pessimistic” conception of economic development (attributed, however, also to Malthus, West, and James Mill), that is, an emphasis upon population pressure and diminishing agricultural returns, a declining rate of profit, and approximate constancy of real wages: The most interesting thing to observe is the complete lack of imagination which that vision reveals. Those writers lived at the threshold of the most spectacular economic development ever witnessed. Vast possibilities matured into realities under their very eyes. Nevertheless they saw nothing but cramped economies, struggling with ever-decreasing success for their daily bread, They were convinced that technological improvement and increase in capital would in the end fail to counteract the fateful law of decreasing returns. . . . In other words, they were all stagnationists. Or, to use their own term, they all expected, for the future, the advent of the stationary state, which here no longer means an analytical tool but a future realitye3 Schumpeter’s primary charge is by no means to be lightly dis- missed. Ricardo’s use of Say’s Law is so rigid and unqualified, compared for example with the applications made by Say himself, that Schumpeter’s harsh words appear to be substantiated. But as far as concerns the Corn Law issue it will be our contention that Schumpe- ter has drawn a misleading picture of Ricardo’s economics. We shall try to show, by reference to his argument for Corn Law repeal, that Ricardo did not envisage the “pessimistic” predictions which apparently flow from the theoretical growth model to be of great practical relevance and this because of the allowances he made for technological progress not only in agriculture but, equally significantly, also in

In some respects Schumpeter’s conception of Ricardo was also that of Keynes: “Ricardo offers us the supreme intellectual achievement, unattainable by weaker spirits, of adopting a hypothetical world remote from experience, as though it were the world of experience, and living in it consistently.” The General Theory of Em- ployment, Interest and Money (London, 1936), p. 192. J. L. Mallet, diarist of the Political Economy Club made a similar criticism. Ricardo, he complained in 1820, “is as the French would express it ‘he‘risse‘ de principes,’ he meets you upon every subject that he has studied with a mind made up, and opinions in the nature of mathematical truths. . . . It is this very quality of the man’s mind, his entire disregard of experience and practice, which makes me doubtful of his opinions on political economy.” The Political Economy Club: Centenary Volume (London, 1921), p. ix. 3. Schumpeter, p. 571.

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manufacturing. Ricardo had great faith in British prospects despite agricultural protection, and neither the charge of too rapid a transfer from theory to policy in this context nor that of a failure to allow sufficiently for technological developments stands up to close exami- nation. We must distinguish at the outset the proposition that the Corn Laws rendered the profit rate in Britain, and accordingly the rate of capital accumulation, lower at any and every point of time than would otherwise be the case in an open economy-so that repeal would entail a once-and-for-all rise in the profit rate-from the “prediction” that in a protected regime the rate of profit will undergo a secular decline. Ricardo frequently emphasized that the price of corn would fall and the profit rate rise if import restrictions were abolished. This “prediction” obviously entailed certain estimates relating to domestic and foreign cost structures in the agricultural sector and the commodity wage rate. But this kind of proposition-of a comparative statics order-is very different from and in no way necessarily implies a historical generalization whereby in a closed system the rate of return will undergo a decline or probable decline with the passage of time. It stands whether or not the rate of profit was actually falling or could be expected to fall in the future (and we may add whether or not the domestic rate was below that of foreign countries). The present article provides evidence which confirms the validity of the opinion given by Dr. G. S. L. Tucker in his work Progress and Profits that “Ricardo’s principal conclusion, immanent throughout his work, was that profits and the rate of new capital accumulation were lower in Britain than they might otherwise have been under a more enlightened economic policy; in this sense he believed an important benefit was being sac- rificed merely for the sake of promoting the self-interest of land- owners. But even if the Corn Laws were not repealed, Englishmen could still look forward to a long period of economic pr~gress.”~ In addition to his objection to agricultural protection turning upon the effect upon the rate of profits in the sense outlined above, Ricardo also opposed the Corn Laws as a source of severe short-run or seasonal fluctuations in British grain prices and as a source of serious allocative inefficiency. The relative weight placed upon these three major objections to protection cannot be easily ascertained. But as they are in any event complementary to one another it is not really essential to carry the issue very far for an appreciation of Ricardo’s hostility towards the Corn Laws.

4. Tucker, Progress and Profits in British Economic Thought: 1650-1850 (Cam- bridge, 1960), p. 162.

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There is a considerable body of recent secondary literature which goes some way towards qualifying Ricardo’s supposed historical bbpessimism.” Professor Mark Blaug’s study Ricardian Economics illustrates what we have in mind. We are told that in Ricardo’s view “if the corn laws are not abolished to permit the transfer of resources to industry, the course of events must undermine the possibilities of further capital accumulation and retard industrial progress,”5 while in the absence of the Corn Laws “Ricardo believed that England was capable of becoming ‘the workshop of the world.’ . . . Indeed, the alleged ‘pessisism’ of Ricardo was entirely contingent upon the main- tainence of the tariff on raw produce.”6 By contrast, Schumpeter does not qualify in this manner his “pessimistic” attributions to -Ricardo regarding British prospects. The theoretical background against which this approach to the Corn Laws is viewed remains, however, ’much the same as that outlined in our compte rendu of Schumpeter’s position, namely, diminishing agricultural returns cou- pled with Malthus’s population doctrine, which together imply a constant rate of commodity wages and a downward trend in the rate of profits until that minimum acceptable level which characterizes the advent of the so-called “stationary state” of zero net accumulation and population growth: “without what Ricardo called ‘a substantially free trade in corn,’ the Ricardian ‘engine of analysis’ predicted a

5. Blaug, Ricardian Economics (New Haven, 1958), p. 29. 6. Ibid., p. 32. Cf. Mark Blaug, “The Empirical Content of Ricardian Economics,” Journal of Political Economy 64 (Feb. 1956): 43; his Economic Theory in Retrospect, 2d ed. (Homewood, Ill., 1968), pp. 113-14. On the “qualified” version of Ricardo’s pessimism-his forecast of stationarity but only in a closed economy -see also Leo Rogin, Meaning and Validity of Economic Theory (New York, 1956), p. 116; Maurice Dobb, Theories of Production and Distribution Since Adam Smith (Cambridge, 1973), pp. 89-90; Donald Winch, Classical Political Economy and Col- onies (London, 1965), p. 74: Ricardo’s basic model, concerned with the problem of population growth and diminishing agricultural returns, deals with the inherent tendency of a closed economy to approach a stationary state at which wages and profits are reduced to a minimum as a result of this problem. This model, we are told, was initially developed “to highlight what could happen if his policy recommendation for the repeal of the Corn Laws was not adopted. . . . He placed great faith in repeal of the Corn Laws as a means of arresting the decline of profits”; and D. P. O’Brien, J. R. McCulloch, p. 296: “Secular stagnation resulting from the Corn Laws is the core, indeed the purpose, of the Ricardian model.” 7. In his presidential address to the American Economic Association of December 1968, A. Gerschenkron seems to adopt a view close to that of Schumpeter: “It is true that Ricardo at times spoke of a ‘progress in prosperity’ that ‘would be beyond the power of imagination to conceive,’ if only the corn laws could be erased from the statute book. But the general power of the analytical model was so great that it is difficult to say that it was meant to apply to nothing else but a mature, insular economy.” Cf. his “History of Economic Doctrines and Economic History,” Ameri- can Economic Review 59 (May 1969): 5.

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rising price of corn and a rise in rents; although real wages would remain constant, investment incentives would necessarily disappear.”8 While Professor Blaug’s view is certainly more defensible than that of Professor Schumpeter, in our opinion it is still wanting. It is founded upon the presumption “that the body of doctrine which Ricardo bequeathed to his followers rested on a series of definite predictions about the course of economic events which were subject to empirical verification, in the strictest sense of the term”.9 This perspective yields the conclusion that because during the period of protection-until 1846-“the consequences predicted by Ricardo failed to materialize,” the system should have been abandoned, although despite the quantitative evidence “Mill and Cairnes clung to Ricardo’s theories.”lO Indeed, since Ricardo “concentrated his entire theoretical discussion on the economic repercussions of agricultural protection,” and since it was the free trade issue which gave “practical significance” to his system, the Ricardian doctrine had, in any event, been rendered irrelevant by the repeal of 1846.l’ In an illuminating article on the empirical content of Ricardian economics, Professor Neil de Marchi has emphasized the distinction between Ricardo’s various statements of “tendency” (including that

8. Blaug, Ricardian Economics, p. 33. Cf. his “Empirical Content of Ricardian Economics, ” pp. 4344: in the absence of Corn Law reform “the Ricardian ‘engine of analysis’ predicted (in the long run) a rising price of corn, a rising share of national income going to rent-receivers, constant real wages, and a gradual vanishing of investment opportunities in industry.” 9. Blaug, “Empirical Content of Ricardian Economics,” p. 41. 10. Ibid., p. 44 (cf. p. 43: “When free trade was not immediately forthcoming, the Ricardians were faced with the problem of accounting for the rapid economic growth of the 1830’s and 1840’s”) and Blaug, Ricardian Economics,,pp. 33, 227. See also Pedro Schwartz, The New Political Economy of J. S. Mill. (London, 1972), p. 16: “[The] dynamism of the British economy was evident to the most superficial ob- server, as was, too, the country’s capacity to sustain a growing population and the increasing availability of capital for the country’s development. These facts, together with a certain relaxation of the economists’ critical attitude as they saw their goals of political reform nearing achievement, are sufficient to explain how the Ricardians’ fear of reaching the stationary state, their insistence on the urgency of the Malthusian peril, their defence of the labour-quantity theory of value and their belief in a fundamental conflict of interests between landlords and the rest of society began to be thought exaggerated.” The same position appears in the Introduction by R. M. Hartwell to the Penguin edition of the Principles (Harmondsworth, 1971), p. 29: “. . . much of the weight of criticism was borne by observation of the growing economy. In this context it was difficult, if not impossible, to accept Ricardo’s theory of the inverse relationship between wages and profits; it was equally difficult to accept the Malthusian theory of population and the doctrine of the stationary state.” 11. Blaug, Economic Theory in Retrospect, 2d ed. (Homewood, Ill., 1%8), p. 140; and his Ricardian Economics, p. 10.

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of profit-rate decline) envisaged as analytical propositions and as historical generalizations and has observed that Ricardo “not infre- quently shifted silently from one meaning to another.” Nevertheless, runs his argument, Ricardo believed “that even his most abstract analysis retained a high degree of explanatory correspondence to real- ity,” for which reason he was enabled “to switch with facility between the roles of analyst and adviser.” The declining profit rate, for example, was indeed a “contingent” prediction, but yet expressed “what Ricardo believed to be the most likely direction of change”--“on average and in the long run.” Accordingly, unpredictable and disturbing causes, especially agricultural innovation, could be neglected in advising on legislation. Moreover, while Ricardo did not go much further than this in specifying his predictions, he did, de Marchi maintains, commit himself, although only under pressure from Malthus, to a twenty-five-year “short run” during which the check of agricultural innovation might operate. l2 Arguing from this perspective de Marchi has come to the defense of Mill on the grounds that “the constancies assumed by Ricardo”-particularly those relating to agricultural innovation--“were broken while the period taken was no longer than Ricardo’s short-run,” which amounted to twenty-five years. There was “nothing ‘forced’ then, about Mill’s invoking technical improvements, if these really were occurring,” because the twenty-five years from Ricardo’s death in 1823 to Mill’s Principles in 1848 do not “constitute a conclusive test period of Ricardo’s predictions.”13 With all this we agree, but in our view this line of argument must be carried further: it is our intention to demonstrate that Ricardo made no “definite predictions” that “investment incentives would necessarily disappear” even when consideration was

12. N. B. de Marchi, “The Empirical Content and Longevity of Ricardian Economics,” Economica 37 (Aug. 1970), esp. pp. 260, 263-66. The same general approach will be found in the account of the Essuy on Profits by W. C. Mitchell. In his lectures Mitchell observed that Ricardo while recognizing disturbances due to improved agricultural technology “did not, however, undertake to say how important that admission is. But it is clear from the run of his exposition that he regarded this as a modification of comparatively secondary moment. It was a qualification, but not of such significance as to prevent the general conclusion which he had derived from the assumption that methods of cultivation remained constant, from retaining its fundamental importance in his thought about economic policy.” Types of Economic Theory, I, ed. J. Dorfman (New York, 1967), p. 292. 13. De Marchi, pp. 263, 271, 273, 274. Professor Blaug writes of Ricardo that “the notion of an impending stationary state was at most a useful device for frightening his complacent contemporaries. In point of fact, Ricardo did not regard it as immanent” (“The Empirical Content of Ricardian Economics,” p. 43; Cf. Ricardian Economics, p. 32). But clearly unlike de Marchi, he envisages the experience of a period of some twenty or twenty-five, years as sufficient-extending beyond the “short run”-to re- fute the Ricardian model.

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given to a long-run period exceeding two or two and a half decades.14 The proof of our contention lies in the fact that the case made against agricultural protection was not based upon the secular downward trend in the rate of return on capital. Ricardo made full allowance for disturbances to the ceteris paribus conditions which must be fulfilled to justify any predictions of a “gradual vanishing of investment opportunities” and apparently believed that past experience relating to technical change and future prospects could not justify an argument for repeal based upon the predictions flowing from his growth model under conditions of unchanged technology or relatively sluggish technological improvement. It will be one of our objectives to demonstrate the significance of technical change, from the standpoint of Ricardian analysis, not only in the wage-goods sector-manufacturing as well as agriculture-but also in the luxury-goods sector. Precisely because of a keen awareness of the potency of new technology Ricardo adopted the position that Corn Law repeal, while certainly desirable (on the grounds that the return on capital and the rate of accumulation would be higher at any point of time in an open than a closed economy), was nonetheless not the sine qua non for continu- ous rapid expansion into a foreseeable future-by which we mean a time span of concern to drafters of policy, even “long term’’ policy. Ricardo’s optimism, we believe, is apparent in his Parliamentary intervention as well as his more formal writings and his correspondence. Indeed the position taken in Parliament may be considered, from one point of view, as a “test” of the validity of our interpretation of the more formal outlook presented particularly in the Essay on Profits and the Principles. Ricardo’s primary objective, it would seem, was to provide an analytical framework whereby to investigate the various factors which play upon the profit rate, rather than one designed to yield a specific prediction. If, as has been suggested, because of the conspicuous fact of growth despite protection Ricardo’s star waned rapidly after his death-this is in itself a separate issue-his critics must have failed to appreciate his procedures. Nothing in the actual course of British experience relating, for example, to accumulation and population growth necessarily reflects adversely on his model according to our understanding thereof. Furthermore the framework devised by Ricardo is relevant to issues ranging far beyond agricultural protection. It does not seem correct to suggest that it was speci-

14. In concluding his argument de Marchi (p. 275) does in fact observe: “In the end it seems that it was Ricardo’s and Mill’s greater concern with ‘understanding’ (explanation ex post) than with predictive accuracy that made them unwilling to aban- don their propositions in the face of contrary facts.”

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fically the free trade issue which gave “practical significance” to the Ricardian system. I1 Our position is based upon a broad study of Ricardo’s economics taking into consideration his evaluation of the rate of accumulation during the war period and the postwar years; his estimate of future prospects; his position regarding the “determinants” of saving; and the status of diminishing returns and the related conception of a declining rate of profits in his scheme of thought. In this section we lay out evidence drawn from Ricardo’s formal writings and from his correspondence. (In section I11 we shall consider his Parliamentary speeches.) We wish first to establish Ricardo’s evaluation of British experience concerning the rate of accumulation and the rate of profits during the preceding two or three decades before turning to his estimate of future prospects. As our starting point we consider Ricardo’s concession to Malthus in correspondence, in fact in one of the earliest extant letters dealing with protection, that during much of the period 1793-1813 the profit rate had risen, and this in large part because of technical progress in agriculture: That we have experienced a great increase of wealth and prosperity since the commencement of the war, I am amongst the foremost to believe; but it is not certain that such increase must have been attended by increased profits, or rather an increased rate of profits, for that is the question between us. I have little doubt however that for a long period, during the interval you mention [probably 1793-1 8 131, there has been an increased rate of profits, but it has been accompanied with such decided improvements of agriculture both here and abroad,-for the French revolution was exceedingly favorable to the increased production of food, that it is perfectly reconcileable to my theory. My conclusion is that there has been a rapid increase of Capital which has been prevented from shewing itself in a low rate of interest by new facilities in the production of f00d.I~ Now there is much that might at first sight appear surprising about this passage. High wartime prices and agricultural extensions were at the center of contemporary debate.I6 Yet the fact is that Ricardo

IS. Ricardo to Malthus, 17 Aug. 1813, The Works and Correspondence of David Ricardo, ed. P. Sraffa (Cambridge, 1952), VI, 94-95. 16. For a discussion of enclosures and prices during the Napoleonic Wars see P. Deane and W. A. Cole, British Economic Growth, 1688-1959: Trends and

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writes as if the price of corn had remained unchanged (and this in terms of a depreciated medium); and places no emphasis upon the relationship between extensions to marginal land and high prices. The high wartime prices, we must conclude, were attributed by Ricardo to short-run phenomena. We know that there was in fact a run of poor harvests, and we also know that Ricardo during a Parliamentary intervention of 1822 emphasized the severe price fluctuations of the period 1796-1814, referring to them as “enormous,” “infinite and constant,” “perpetually fluctuating and varying,” and “as uncertain as possible.”” But the price of wheat at the end of the period he took to be almost the same as at the beginning, a fact which in the Essay on Profits (as we shall see) as well as the early comment to Malthus he attributed to technical progress. Ricardo’s allowance for imported corn in the passage given from the early letter to Malthus does not seriously dilute the implications of the emphasis upon agricultural innovation during the period 1793-1813. It is not the mere fact of imports that Ricardo had in mind but new technology abroad; moreover reference is made to British innovation, while imports clearly did not obviate the need for increased domestic output.l8 Finally, at the same period as the Essay

Structure, 2d ed. (Cambridge, 1967), pp. 74-75, 91, 95 n., 160-61. Index numbers of wheat prices in relation to the prices of producer and other consumer goods (1700/01 = 100) during part of the period in question are given as follows: Period Wheat Prices Other Prices Index of Relationship 1785-1795 148 113 13 1 1790-1800 196 128 153 1795- 1 805 250 146 I70 See also data on wheat prices and enclosure acts given in Edwin Cannan, A History of the Theories of Production and Distribution from 1776 to 1848, 3d ed. (1917; New York, 1967), pp. 116 f. 17. See speech of 12 June 1822, Works, V, 212-13. Ricardo gives the following wheat prices (shillings per quarter): 1796-72; 1798-50; 1801-1 18; 1803-56; 1810-106; 1814-73. He also gives the following flour prices (shillings per sack): July 1801-124; Dec. 1801-72; Dec. 1802-52; Dec. 1804-89; and thereafter fluctuations from 90/- to 50/-. For a complete list of wheat prices during this period see B. R. Mitchell, Ab- stract of British Historical Statistics (Cambridge, I962), p. 488. 18. A rough indication of the increase for England and Wales is provided in Deane and Cole, British Economic Growth, p. 65: Home Population Consumption Net Output Gross Output Net Year (000) (000 qs.) of Corn of Corn” Imports 1790 8,247 18,556 17,884 19,87 1 672 1800 9,024 20,305 18,991 21,102 1,313 1810 10,309 23,196 21,988 24,431 1,202 a. Includes seed-corn.

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on Profits, that is, early in 1815, Ricardo wrote to Malthus: “If it be true that capital has become more and more productive on the land, it can I think only be accounted for on the supposition that great improvements have taken place in agriculture, and that wages have been kept moderate by the improvements in those manufactures which supply the poor with the necessaries on which a part of their wages are expended.”lg Here there is no reference at all to imported corn. It will be noted that in the last extract Ricardo alludes to manufacturing as well as agricultural innovation. This statement recalls one of the points made to McCulloch seven years later in Ricardo’s explanation of his unwillingness to countenance a differential between domestic and continental rates of return equivalent to the supposed corn-price differential because of the need to allow for the cost of manufactured wage goods.20 We may consider also Ricardo’s various reviews of British experience during the war made in 1821 and 1823. The striking fact is that

For complete data on grain imports see Mitchell, Abstract of British Historical Statistics, pp. 95 f. Net imports into Great Britain of wheat and wheaten flour (000 qs.) are as follows: Total Imports from Period Imports Ireland 1785-89 - I45 1790-94 898 1795-99 2,302 1800-04 4,075 24 1 1805-09 2,256 34 1 1810-14 4,148 873 1815-19 3,980 626

For most of the war period grain imports were effectively duty free, since domestic prices exceeded the limit at which the charge became merely nominal, and this despite an increase of the limit in 1804. In the years 1809 and 1810 the tariff was sus- pended entirely. See W. C. Mitchell, Types of Economic Theory, I, 277; Cannan, Theories of Production and Distribution, p. 119. Ricardo in his Essay observed that Napoleon’s “continental system” aimed at isolating Britain was only applied partially: “Buonaparte, when he was most hostile to us, permitted the exportation of corn to England by licences, when our prices were high from a bad harvest, even when all other commerce was prohibited” (Works, IV, 29). However, in a later letter to Malthus (24 June 1818, ibid., VII, 271) Ricardo stated that “although I will admit, that in the case supposed, our wealth has increased by the increase of rent, from 1793 to 1813, yet I would contend that if the trade had been free, and corn had been imported in preference to growing it, under the new and improved circumstances of agriculture, our wealth would have increased in a still greater ratio than it now has done.” This statement is perhaps intended to mean that if a larger proportion of the increased domestic consumption had been satisfied by importation the growth rate would have been higher than it actually was. At least as far as concerned British actions the trade had in fact been effectively free. 19. Letter of 17 March 1815, Works, VI, 194. 20. See below, the quotation at n. 50.

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under the least encouraging circumstances from a growth perspective-namely , in conditions of high expenditure of an “unproduc- tive” kind-the rate of savings, Ricardo insisted, had been maintained at a high level. Speaking in Parliament in March 1821, Ricardo denied that there had occurred during the war any “loss” of capital as a result of inadequate savings at a time of heavy government expenditure, as some were maintaining: “he believed that the savings of individuals during the war, would be found to have more than counteracted the profuse expenditure of the government, and that the capital at the end of the war was greater than it was at the commencement of it.”21 And in his comments of 1823 on Blake’s analysis of the effects of government expenditure Ricardo again denied that capital accumulation had been in any way deficient over the preceding years: “Who denies that savings actually accumulate simultaneously with the expenditure of government? It is the only theory by which the actual phenomena of the last twenty-five years can be explained.”22 Confidence in the past performance of the capital growth rate is also discernible in Ricardo’s comments on the Poor Laws to be found in the Principles. Without doubt he took a dim view of the relief system. In his first Parliamentary speech, that on the Poor Rates Misapplication Bill, he spoke of “two great evils” to be remedied -“the tendency towards a redundant population, and the inadequacy of the wages to the support of the labouring classes.”23 Also on the occasion of the second reading Ricardo spoke against the bill “principally on the ground that it tended to increase the p~pulation.”~~A strongly worded condemnation of the Poor Laws will also be found in a letter to Trower early in 1817 wherein Ricardo maintained that no steps should be taken to extend the coverage of the relief system: “It is a painful reflection but not less true on that account that we can never get into a good system, after so long persevering in a bad one but by much previous suffering of the poor. The population can only be repressed by diminishing the encouragement to its excessive increase,-by leaving contracts between the poor and their employers perfectly free, which would limit the quantity of labour in the market to the effective demand for it.”25 But this position is no more extreme than that given in the Principles itself,26 while the fact is-and this is

21. Speech of 10 March 1821, Works, V, 95. 22. “Notes on Blake,” Works, IV, 341. 23. Speech of 25 March 1819, Works, V, 1. 24. Ibid., p. 6. 25. Ricardo to Trower, 27 Jan. 1817, Works, VII, 125. 26. Works, I, pp. 105 f., esp. 108: “The principle of gravitation is not more certain

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the point we wish to emphasize-that in evaluating the results of the Poor Laws at the close of the chapter “On Wages” Ricardo emphasized his belief that the dynamic growth of the economy had out- weighed their worst effects: Happily these laws have been in operation during a period of progressive prosperity, when the funds for the maintenance of labour have regularly increased, and when an increase of population would be naturally called for. But if our progress should become more slow; if we should attain the stationary state, from which I trust we are yet far distant, then will the pernicious nature of these laws become more manifest and alarming; and then, too, will their removal be obstructed by many additional difficulties. 27 The fascinating point to note in this extract is Ricardo’s belief that the very rapid contemporary growth rate of population was actually required to meet that of capital. It must be remembered that the population growth rate attained its maximum level in the period under discussion .28 Now it cannot be argued that the extract given above relating to the Poor Laws represents an ill-considered comment which does not justify much consideration. For a statement is given to much the same effect in the chapter “On Taxes.” The emphasis is upon a rapid

than the tendency of such laws to change wealth and power into misery and weak- ness; to call away the exertions of labour from every object, except that of providing mere subsistence; to confound all intellectual achievement; to busy the mind continually in supplying the body’s wants; until at last all classes should be injected by the plague of universal poverty.” 27. Works, I, 108-9. (Professor Sraffa ibid., p. xxi, has observed that in the long passage on the poor laws, ibid., pp. 105-9, we can recognize James Mill’s touch.) It is worth adding that from any early stage Ricardo regarded increased savings-and- investment as a helpful step in dealing with the postwar crisis. Thus in 1817 he suggested that increased savings-and-investment would alleviate matters, in the course of a denial that the problem of depression would be solved by canceling the national debt as some had recommended: “It is only by saving from income, and retrenching in expenditure, that the national capital can be increased: and neither the income would be increased, nor the expenditure diminished by the annihilation of the national debt. It is by the profuse expenditure of Government, and of individuals and by loans that the country is impoverished; and every measure, therefore which is calculated to promote public and private economy, will relieve the public distress” (ibid., p. 246). And in mid-I821 the same solution is proposed: “in my opinion increased savings would alleviate rather than aggravate the sufferings of which we have lately had to complain” (Letter to Malthus, 21 July 1821, Works, IX, 27). Now Ricardo would not have made any such suggestion had he believed Britain was approaching stationarity , for he warned against increased saving under such circumstances (cf. Works, I, 99- 1 00). 28. See Peter Mathias, The First Industrial Nation: An Economic History of Bri- tain, 1700-1914 (London, 1962), p. 449.

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growth rate of capital since 1797, for the proof of which Ricardo points amongst other indexes to contemporary population growth: Nothwithstanding the immense expenditure of the English government during the last twenty years, there can be little doubt that the increased production on the part of the people has more than compensated for it. The national capital has not merely been unimpaired, it has been greatly increased, and the annual revenue of the people, even after the payment of their taxes, is probably greater at the present time than at any former period of our history. For the proof of this we might refer to the increase of population-to the extension of agriculture-to the increase of ship- ping and manufactures-to the building of docks-to the opening of numerous canals, as well as many other expensive undertak- ings; all denoting an increase both of capital and of annual prod~ction.~~ Are there, however, grounds for believing that Ricardo “forecast” a prospective deceleration of the high growth rate which charac- terized the two or three preceding decades? The Essay on Profits -the subtitle of which reads “Shewing the inexpediency of restrictions on importation”-casts much light on this question.30 When we turn from the pure theory of the first section to the later pages dealing with application we find a most optimistic view of British prospects notwithstanding the corn-import restrictions. It is made clear that the state of stationariness, despite protection of agriculture, is “at a great distance,” and that rapid expansion may be expected “under any system” because of an available backlog of unused technology. Ricardo did not forecast stagnation as an almost immediate consequence of a failure to allow free importation of corn; and neither did he place any emphasis upon the prospect of stagnation in the future due to a falling rate of return. His major point is simply that the rate of growth is likely to be higher in a free system than in a protected system. In the light of the traditional interpretation of Ricardo’s position in the Essay on the effects of the policy of protection it may be instructive to give the relevant extract in full: That great improvements have been made in agriculture, and that much capital has been expended on the land, it is not at- 29. Works, I, 151-52. 30. As early as 1811 in his informal notes on Bentham Ricardo had observed that “Great Britain is far distant from the point where capital can no longer be advanta- geously accumulated” (Works, 111, 274). But although Ricardo was at this time already familiar with the principle of diminishing returns (cf. ibid., p. 287) it is clearly unjustified to ascribe to him a mature conception of the growth model.

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tempted to deny; but, with all these improvements, we have not overcome the natural impediments resulting from our increasing wealth and prosperity, which obliges us to cultivate at a disad- vantage our poor lands, if the importation of corn is restricted or prohibited. . . . Mr. Malthus is, no doubt, correct, when he says, “If merely the best modes of cultivation now in use, in some parts of Great Britain, were generally extended, and the whole country was brought to a level, in proportion to its natural advantages of soil and situation, by the further accumulation and more equable distribution of capital and skill, the quantity of additional produce would be immense, and would afford the means of subsistence to a very great increase of population.” This reflection is true, and is highly pleasing-it shews that we are yet at a great distance from the end of our resources, and that we may contemplate an increase of prosperity and wealth, far exceeding that of any country which has preceded us. This may take place under either system, that of importation or restriction, though not with an equally accelerated pace, and is no argument why we should not, at every period of our improvement, avail ourselves of the full extent of the advantages offered to our acceptance-it is no reason why we should not make the very best disposition of our capital, so as to ensure the most abundant return.31 A number of comments from the correspondence of 1815-16 confirm the position taken in the Essay. In June 1815 Ricardo wrote of the prospect as one “which I have no doubt will . . . prove a long period of prosperity.” In December of the same year he referred to the contemporary depression, which he explained in terms of capital misallocation, but was confident regarding the future: “In the present case I fully expect that it will be followed by a rapid and brilliant course of prosperity notwithstanding the disadvantages we labour under from the pressure of our enormous debt.” A few months later in February 1816 he repeated the same view: “High rents are always a symptom of an approach to a stationary state-we are happily yet in the progressive state, and may look forward with confidence to a long course of pr~sperity.”~~Now none of these “forecasts” are made to turn upon prior repeal of the Corn Laws. They are quite uncondi- tional and suggest that the passage given above from the Essay on Profits reflects Ricardo’s true position rather than a casual, poorly 31. Works, IV, 32-34. 32. See Works, VI, 232, 345, and VII, 16-17.

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considered remark made hastily in reply to some criticisms by Malthus. In the summer of 1817 we also find that Ricardo maintained his optimistic outlook in correspondence. Writing to James Mill he observed: “An abundant crop will soon make the people forget all their past misfortunes, and we may I hope consider the present period as one from which we shall commence a long course of prosperity.” Given the necessary reallocation of capital from depressed to buoyant industries, he continued, “I know of nothing to impede our progress, but the relative situation of other countries.” Settled conditions on the Continent, he conceded, would “inevitably draw capital from this country where interest is low, to others where it is high” (particularly because of relatively high taxation), but despite these disadvantages he remained confident: “perhaps these will have the effect of making our progress more slow, they will not wholly arrest it. We have happily some natural advantages which cannot be exp~rted.”~~(The precise nature of these “natural advantages” and the reason for his confidence despite the danger of capital outflow were to be made explicit in correspondence with McCulloch some four years later as we shall presently see.)34 And a month later he observed to Malthus: “I doubt whether we have even during the late distresses ceased to advance as a nation in wealth, but at present I think no one can doubt that we are again making forward strides in prosperity. . . .”35 In the Principles itself, at the conclusion to the chapter “On Profits”-a most conspicuous location-Ricardo distinguished between “the effects of accumulation . . . in different countries”: However extensive a country may be where the land is of a poor quality, and where the importation of food is prohibited, the most moderate accumulations of capital will be attended with great reductions in the rate of profit and a rapid rise in rent; and on the contrary a small but fertile country, particularly if it freely per- mits the importation of food, may accumulate a large stock of capital without any great diminution in the rate of profits, or any great increase in the rent of land.36 Even with protection in the case of a small but fertile country-an obvious reference to Britain-there is little emphasis on a falling rate

33. Ricardo to James Mill, 7 Aug. 1817, Works, VII, 170-71. Cf. Ricardo to Malthus, 10 Oct., ibid., p. 192: “We shall now I hope for some years sail before the wind.” 34. Below, section 111. 35. Ricardo to Malthus, 4 Sept. 1817, Works, VII, 185-86. 36. Works, I, 126.

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of return. It is important to note that the weak force of diminishing returns in an economy such as that of Britain is not even explained here by reference to the adoption of new technology. But a few pages earlier we do read that “this tendency, the gravitation as it were of profits, is happily checked at repeated intervals by the improvements in machinery, connected with the production of necessaries, as well as by discoveries in the science of agriculture.”37 In the Funding System (1820) we are told that while rising costs of food production in a closed economy will reduce the profit rate until the limit to further accumulation is reached, “the richest country in Europe is yet far distant from that degree of improvement.” Free trade in corn would, however, permit an “indefinite” expansion.38In the same year, writing to Torrens, Ricardo made out a case along the same lines: “1 contend for free trade in corn on the ground that while trade is free, and corn cheap, profit will not fall however great the accumulation of capital. If you confine yourself to- the resources of your own soil, I say, rent will in time absorb the greatest part of that produce which remains after paying wages, and consequently profits will be These latter statements scarcely imply that the running down of the economy’s growth potential was envisaged to be of much practical relevance. At most they indicate a prospective problem in the distant future. It is not necessary to give an actual defini- tion, in terms of years, of the time period involved. Suffice it to say that it would involve a prospect so distant as to be of little interest to those concerned with policy-even long-term policy-as will presently be confirmed by reference to Ricardo’s Parliamentary position. The Notes on Malthus of 1820 are also highly revealing. Malthus for his part expressed great optimism regarding future prospects for technological progress although particularly in a regime of agricultural protection. He spoke of such prospects in terms of “centuries to come”:

. . . it must be allowed that a great demand for corn of home growth must tend greatly to encourage improvements in agriculture, and a great demand for labour must stimulate the actual population to do more work; . . . the probabilities of an increase in the productive powers of labour sufficient to counterbalance

37. Ibid., p. 120. (See below, pp. 34-35 regarding the further minimization in the same context, of the empirical significance of a falling profit rate in the light of technical progress.) See also ibid., p. 93. 38. Works, IV, 179. 39. Ricardo to Torrens, 21 Oct. 1820, Works, VIII, 208 (my emphasis).

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the effect of taking additional land into cultivation are so strong, that, in the actual state of most countries in the world, or in their probable state for some centuries to come, we may fairly lay our account to their operation when the occasion calls for them.40 Now Ricardo did not object to the optimistic tone, insisting merely that prospects for innovation would be as good in an open economy: “Under a system of free importation, there would be a sufficient demand for corn of home growth to encourage improvements in Agricul- ture.” But what profits would be at the beginning of the twentieth century, he continued, was a quite open question and “must depend on improvements in Agriculture-or on the permission by law to import corn without restriction from other countries.” There is no “prediction’’ of a declining secular rate of profit even in a closed economy. The reference given above (at note 27) to Ricardo’s “optimistic” statement in the Principles regarding the effects of the Poor Laws is also relevant in the present context. It will be recalled that Ricardo recommended restriction of the scope of outdoor relief not on the grounds of actual excessive population growth or even an imminent crisis in this regard but simply on the grounds that “if our progress should become more slow; if we should attain the stationary state, from which I trust we are yet far distant, then will the pernicious nature of these laws become more manifest and alarming; and then, too, will their removal be obstructed by many additional difficulties.” These remarks suggest no alarm regarding future growth prospects. They constitute a recommendation for a sensible precaution in light of a possibility that the future growth rate of capital might decelerate. There is a further aspect to be noted regarding Ricardo’s evaluation of the problem of population growth. Ricardo did not play down the issue of Corn Law repeal on the grounds that any advantages to labor would be erased by population growth. His references to the danger of excessive population expansion are restricted on the whole to the topic of the Poor Law itself or to that of informal relief for the poor, that is to say, his objection was simply to the artificial stimulus of population growth.

I Even the case made against “systems of equality” was not founded upon the stimulus given thereby to excessive population growth relative to food production. On the contrary, the emphasis is upon the ease of raising agricultural output from domestic resources, as is evident from the following remarks to Francis Place regarding

40. Works, 11, 283-84.

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the latter’s critical evaluation (in the Zllustrations and Proofs of the Principle of Population) of Owen’s scheme: First, in the latter part of the first chapter it is I think inferred that under a system of equality population would press with more force against the means of subsistence than it now does. This I do not think is true. I believe, that under such a system, mankind would increase faster than it now does, but so would food also . . . . [And] thus we might go on, even with an increase of capital, without any increased difficulty, till that distant time, which because of its distance, Mr. Malthus says should not damp our ardour. . . . It should always be remembered that we are not forcing the production of food to the extent of our power. With- out one shilling more capital, without any additional labour being employed in the country, we might probably increase the quantity of food 25 pc. On this foundation are raised all Mr. Owen’s speculation^.^^ The foregoing review reveals a recognition that the rate of return on capital and the rate of accumulation had been maintained for two decades and more, and also the absence of any prediction of a prospective reversal of these trends. The “checks” of agricultural and of manufacturing improvements are emphasized as phenomena which explain past experience in the Essay on Profits and in correspondence-and it is made clear in the Essay that a continuation of the same pattern might be expected-while in the Principles little weight is placed upon diminishing returns and falling profits as empirical features of an economy such as that of Great Britain, even in the absence of technical change. The most striking feature of the various accounts is the emphasis upon a rapid contemporary growth rate of capital sufficient apparently to equal that of population-indeed population growth is envisaged largely as a “response” to that of capital-despite the existence of inauspicious circumstances in the form of high taxation, Poor Laws, Corn Laws, and the possibility of an outflow of savings abroad. And all this despite the fact that Ricardo’s objective, as far as concerned policy, was to persuade the legislature to repeal the Corn Laws.

111 We devote the present section to a review of Ricardo’s position in Parliament insofar as it concerns the issue of agricultural protection.

41. Ricardo to Place, 9 Sept. 1821, Works, IX, 49-50 (emphasis in original).

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In a speech delivered before the House of Commons in March 1821 Ricardo is reported to have maintained, in objecting to one member’s “unfavourable view of the state of the country,” that “he had better hopes” for “he could not help feeling that the difficulties of the country were nearly at an end, and that the present unnatural state of depression must soon cease to be felt.”42 Now this evaluation, and also Ricardo’s recommendation that the Corn Laws-which entailed absolute prohibition as long as the domestic price of wheat did not exceed 80/- per quarter and free importation thereafter-be replaced by a “countervailing duty” and corresponding ‘‘drawback upon exportation,”43 upset McCulloch, who wrote immediately: I read your speech on the agricultural question, as reported in the Courier, with great interest-I confess however, that I was extremely staggered with some of the positions you are reported to have laid down-Such, for example, as that it was imperative to impose some shackles on the corn trade-and that the country had nearly got the better of all her diffi~ulties.~~ With regard to the first matter, McCulloch had the impression from the press report that, according to Ricardo, a duty should be imposed on corn in excess of the level required to compensate for “the burdens which fall exclusively on the agriculturalist^."^^ His comment on the second issue deserves to be reproduced in full for only then can the flavor of his reaction be appreciated: If in stating that the country had nearly got the better of all he,r difficulties you mean that the supply of manufactured goods will in future be more nearly adjusted according to the effective demand, and that capital will be better distributed, I should entirely agree with you-But the faulty distribution of capital does not make a tithe of the real and substantial difficulties of the country-Our taxation and our corn laws have lowered, and must continue to lower the profits of stock in this country- They have brought us into the condition of a snow ball in a fur- nace-And unless we are surrounded by Bishop Berkeleys wall of brass, our stock will be gradually transferred to other

42. Speech of 7 March 1821, Works, V, 91. 43. Ibid., p. 87. 44. McCulloch to Ricardo, 13 March 1821, Works, VIII, 352. An excellent indication of the state of McCulloch’s concern will be found also in an earlier letter of 19 March 1820, ibid., p. 166. Ricardo is begged not to concur “in any scheme, however modified, for restricting the freedom of this trade.” 45. Ibid., pp. 352-53.

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countries-I hold this to be the real difficulty with which the country has to contend, and I have yet to learn that there is the shadow of a ground for saying that it is nearly gone by-I admit that with prudent management the burdens which sink the rate of profit and stimulate the transfer of stock to other countries might be easily reduced; but we have no such management, and in arguing this question we must take things as they are-a bad government-an oppressive system of taxation-and an average price of corn twice as high as the average price of any other country-For a time it may be possible to dam up water or capital to a comparatively high level, but ultimately and in spite of every obstacle it must fall to the general level-Besides isit not absolutely certain that while the corn law system is persevered in we shall continue to experience excessive fluctuations in prices? Why I beg to know should the next five years differ in this respect from the last five? I thought you had admitted that fluctuations at one time had the effect of entailing famine on the consumer and at another time of entailing ruin on the farmer-I may be wrong in this supposition-I suppose I am so-But if I am right it humbly appears to me that nothing could be more completely at variance with this principle than the opinion expressed by you in the Courier-If Political Economy be worth one straw as a science-if there be one principle which may be said to be ascertained-if it is not a mere holyday bauble-we are entitled boldly and confidently to affirm that so long as the present taxation and corn law system is kept up the country never can rise superior to the difficulties-To maintain the contrary is to countenance and propagate a most dangerous delusion-Why ask the minister to abolish taxes, or to relax the barbarous restraints on trade, if we have already nearly got the better of all our difficulties, and are about to enter the haven of prosperity? You will forgive me for saying so, but it is my honest and sincere conviction that your speech is calculated to do infinite mischief-The opinions of the great mass of those who address the House are not entitled to the least consideration, and do not meet with it-But when we find the first Political Economist of the age stating that the corn trade ought to be shackled-and that in spite of the distresses of the agriculturists, of the pressure of the poor rates, and of taxation that we have nearly got the better of all our difficulties-what are we to think?46

46. Ibid., pp. 353-55 (my emphasis except for “all her difficulties”, which is itali- cized in the original).

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In this emotional response McCulloch denies that the economic problems of the day could be accounted for by capital misallocation, to which explanation, we shall presently see, Ricardo made continual appeal; he insists upon a very great profit differential between domestic and foreign investment due to the Corn Laws (amongst other things)-und it would seem one that he believed was growing-and he forecasts that with the retention of the Corn Laws nothing could prevent the export of capital, and by implication ultimate stagnation. Passing reference is also made to the severe fluctuations in agricultural prices which result from the protective system. Now in his reply Ricardo complained of misrepresentation by the press as far as concerned his recommendation for a countervailing duty: I contended that it should not amount to more than the peculiar taxes to which the Agriculturist was subject, and on the same principle he should be allowed a bounty equal to those taxes on the exportation of corn-that thus the prices abroad, and at home, would be always nearly alike, and if we had an abundant harvest the farmers might export it without a great and destructive fall of price. I certainly did admit that we could not immediately adopt such a plan, but contended that all our measures should have that object in view. This I have always said and so have you. . . . But with regard to his reportedly optimistic view of the British outlook, he was quite adamant: With respect to the opinion I gave of our situation I have not been incorrectly reported-I uttered what I thought. . . . I said‘ only what I thought, when I expressed an opinion that it would not be long before we saw a marked improvement in our c~ndition.~~

47. Ricardo to McCulloch, 23 March 1821, ibid., pp. 356-57. Ricardo noted that he had been best reported by the British Press. But a reading of the British Press report (Works, v, pp. 81 f.) seems to present a distorted picture of the recommended “countervailing duty.” This it describes (ibid., p. 82) as a recompense for all the added charges met by British farmers compared to those offoreign growers, while in. fact Ricardo had in mind a recompense for differential charges imposed on British farmers compared with British manufacturers, amounting to a flat-rate import duty of 101- per quarter, and an export subsidy of 7/-. (Cf. On Protection to Agriculture, 1822, Works, IV, 243; and V, 82, 152, 172, 257.) The report in Hansard, which is largely drawn from the Courier-see ibid., V, 81 n.-the paper read by McCulloch, seems to give a more accurate account in this respect. McCulloch nonetheless had the mistaken impression from the Courier, as we have seen, that Ricardo was calling for an “excessive” degree of protection.

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In the main body of his reply we find a number of revealing statements. First, Ricardo repeats the theme which he in fact maintained throughout his speeches and correspondence, as we shall show in detail presently, that the defect of the Corn Law as it existed was to generate surpluses and agricultural “distress” during periods of particularly good harvest. Secondly, he believed that even if a profit-rate differential existed, the relative immobility of capital significantly reduced the danger of a capital outflow: “I do not attribute the distressed state of Agriculture to taxation,” he wrote; “I believe that it might have been as bad, with the present corn laws, if we had not had a single tax to pay-abundance without a vent cannot fail to produce distress, but must it be lasting? I think not. You think otherwise because you are of opinion that capital will be constantly drawn away from this country whilst the corn laws are in force. I acknowledge the tendency of capital to flow from us, but I think you very much overrate it. I have always said that the desire to stay in our own country is a great obstacle to be overcome.”48 Thirdly, the differential was, he thought, in any event far lower than McCulloch feared. For this two reasons are given: “You infer too strongly,” he commented, “that profits abroad exceed profits here by the whole difference in the money price of corn”-an evident allusion to the fact that the wage basket contains manufactured as well as agricultural commoditie~.~~ The second reason is that while profits would admittedly be “very considerably” increased by the importation of cheap corn, Ricardo was not convinced that the real or labor costs of domestically produced corn, presumably at the margin, were so far out of line with costs abroad as to generate an bbenormous”differential between rates of return: [If] we were allowed to get corn as cheap as we could get it, by importation, profits would be very considerably higher than they now are; but this is a very different thing from saying that profits are very considerably lower here than abroad. It is quite possible (tho I do not believe it is true) that profits may be higher here than abroad. It is possible that the labour price of corn may be cheaper here than in the countries from which we should import corn if the trade were free and open. I have put the case in my book of a country having a very little superiority over its neigh-

48. Works, VIII, 357. Ricardo presumably refers to a profit differential as it would pertain in normal circumstances, not in conditions of exceptionally low corn prices (my emphasis). 49. This is how McCulloch interpreted the comment as we shall see.

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bours in the production of corn but a very great one in the production of manufactured goods. In such a country, notwithstanding a corn law, profits would be higher than in the neighbouring countries, and consequently no capital would flow from it, although it should refuse to import cheap corn. I beg you to observe that I do not say this is our case, I only say it might be our case, and I mention it to shew you that the rate of profits may not be so enormously different here and elsewhere as you are disposed to think.50 In closing Ricardo insisted that despite what he called loosely a “tendency” for a capital outflow due to the Corn Laws, and despite the desirability of repeal in the interest of future prosperity he nonetheless thought that British prospects were good: I acknowledge the tendency of the corn laws to send capital from the country-I acknowledge that our immense taxation has a tendency to produce the same effects, and I believe in my con- science that no measures could so much contribute towards our wealth and prosperity as repealing the corn laws, and paying off our debt, but though this is my opinion I am by no means ready to admit that we may not have a more limited measure of prosperity notwithstanding the continued operation of our corn laws, and the continued existence of our debt. In nothing that I have now said am I conscious of maintaining any opinion at variance with those principles which it has been my pride to advocate, and which I can assure you I am strenuously supporting against a host of adversaries, in the shape of witnesses, as well as mem- bers, in the Agricultural Committee. . . . You ask “[why] ask the minister to abolish taxes or to relax the barbarous restraints on trade, if we have already nearly got the better of all our difficulties, and are about to enter the haven of prosperity?” I answer, because I am not contented with a little prosperity if I can obtain a great deal for my c~untry.~’ McCulloch was happy enough with Ricardo’s assurances that his recommendations for reform did not entail a greater degree of protection than that called for by the legitimate rule of a “countervailing tariff,” but there still existed between them, he insisted, a serious difference of opinion regarding “the prospects of the country.’’ He made two main points. The first is in reference to Ricardo’s observa-

50. Works, VIII, 357-58. 51. Ibid., pp. 358-59 (my emphasis).

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tion that the corn-price differential between nations was an inaccurate measure of the profit-rate differential. There may be large international differences in corn prices, McCulloch insisted, but only small differences in the prices of manufactured goods, and corn is the primary wage good: I admit that a considerable relative reduction in the price of manufactured goods might sustain the rate of profit in a country which had high corn prices-But, in point of fact, we can never be in this situation-Our corn, which is the main regulator of wages, may be double or triple its price in other countries but owing to the facility of transport, and their great value in small bulk, it is next to impossible that our manufactured goods can be from 15 to 20 per cent cheaper-The opposing forces do not, therefore, balance each other. . . .52 Secondly, he objected to Ricardo’s emphasis upon international capital immobility: You appear to me to lay far too much stress on the love of country-This passion is, I believe, strongest in low states of society-There is no reason why the capitalists of Great Britain should be more disposed to remain satisfied with comparatively small profits than the capitalists of Holland-Indeed I feel a firm conviction that it is owing infinitely more to the unsettled state of the Continent and the distance of America than to any other circumstance that an infinitely greater quantity of British capital has not been transferred to other countries-Were the United States as near us as France the love of country, I am afraid, would be found to be a very small restraint indeed upon the desire to get larger profits by sending capital across the channel-. 53 The outstanding feature of the foregoing exchange is Ricardo’s minimization of the negative effects of agricultural protection upon the rate of domestic accumulation, in contrast to the position of McCulloch, who insisted, from the standpoint of what he believed to be Ricardian orthodoxy itself, that the fundamental source of Britain’s difficulties lay in a relatively low rate of return due, in considerable part, to the Corn Laws, and further that the prospect would be yet grimmer. Now it may be said that Ricardo merely intended to express the likelihood of an upturn from a temporary depression but

52. McCulloch to Ricardo, 2 April 1821, ibid., p. 364. 53. Ibid., pp. 364-65.

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had nothing to say about long-term growth prospects. But Ricardo’s refusal to “overrate” the danger of capital outflow in a protected economy, or to accept McCulloch’s high estimate of the supposed differential between domestic and foreign rates of return due to a relatively high level of corn prices, does in fact suggest that his position was pertinent to Britain’s potential for growth. This seems to be how McCulloch understood him in insisting by contrast upon the prospect of a continually declining rate of return and capital loss abroad. This interpretation of Ricardo also seems to be confirmed by a statement in the Principles of considerable methodological interest, regarding the causes of the contemporary depression. Ricardo’s “forecast” was one of a satisfactory growth rate once the “short run’’ problem of capital misallocation had been overcome: The distress which proceeds from a revulsion of trade, is often mistaken for that which accompanies a diminution of the national capital, and a retrograde state of society; and it would perhaps be difficult to point out any marks by which they may be accurately distinguished. When, however, such distress immediately accompanies a change from war to peace, our knowledge of the existence of such a cause will make it reasonable to believe, that the funds for the maintenance of labour have rather been diverted from their usual channel, than materially impaired, and that after temporary suffering, the nation will again advance in pro~perity.~~ It seems clear enough that Ricardo’s optimism, despite protection, extended to long-term prospects. In any event, the conception of secular deceleration of accumulation is conspicuous by its absence. Ricardo focused on the negative aspects of protection in a relative rather than an absolute sense (much as in the Essay on Profits)-the growth rate is likely to be higher in an open than a protected economy-at no time suggesting that in the absence of reform the profit rate and accumulation were likely to undergo a secular decline. This is so despite his allowances for capital exportation and despite the fact that the case was presented before a public forum where exaggeration rather than moderation might not be unexpected in an effort to influence opinion. There exists, however, a small number of speeches which do em-

54. Works, I. 265. Ricardo referred to “the retrograde condition” as “an unnatural state of society.” When stationariness is reached the “natural tendency” for economies as distinct from individuals, “is to continue for ages, to sustain undiminished their wealth, and their population.”

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phasize low profits and loss of capital abroad in consequence of protection, as phenomena actually responsible for the contemporary depression. General unemployment during the postwar period, in Ricardo’s formal writings and in his correspondence, was consistently accounted for in terms of various frictions delaying the necessary reallocation of resources from wartime to peacetime industries. How- ever, on 16 December 1819 before the Commons, Ricardo-temporarily as we shall see-set ‘aside this explanation and had recourse for the first time to an inadequacy of capital supply relative to population as the cause of low wages and “deficiency of employment.” The impossibility of a failure of aggregate demand is not questioned, and recourse to expenditure on public works as a stimulant is rejected, but there is no reference-at least in the extant transcription of the speech-to capital immobility, while an inadequacy in capital supply relative to that of population is now said to be responsible for the state of low wages and “deficiency of employment.” Ricardo sought for the cause of the insufficiency of capital and found the Government to be only partly at fault.55 (“The proportion of the capital to population,” runs the report, “regulated the amount of wages, and to aug- ment them, it was important to increase the capital of the country . . . . The causes of the insufficiency of capital and the consequent disproportion between wages and population, were to be attributed to many circumstances, for some of which government were not to blame.”) In this speech Ricardo referred to a relatively low return on domestic capital characteristic of a countri with ‘‘large capital,,but of increasing population and of an extent of soil necessarily limited,” but recognized a predilection notwithstanding by investors for domestic projects, “not only because persons felt a solicitude to keep their property under their own eye, but because, the same confidence was not reposed in the security of others.” Nevertheless, there were limits and more settled conditions abroad had induced an outflow of capital to take advantage of better profit opportunities. While “this arose from no fault of the government,” the result was “a deficiency of employment and consequent distress .” But government policies, including agricultural protection, had also contributed to the loss of capital: Then came the question, had we taken the proper steps to prevent the profits upon capital from being lower here than in other countries? On the contrary had we not done everything to aug- ment and aggravate the evil? Had we not added to the natural

55. Speech of 16 Dec. 1819, Works, V, 32.

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artificial causes for the abduction of capital? We had passed corn laws, that made the price of that necessary of life, grain, higher than in other and neighbouring countries, and thus interfered with the article which was considered the chief regulator of wages. Where grain was dear, wages must be high, and the effect of high wages was necessarily to make the profits on capital 10w.56 Reference is made to the heavy burdens of taxation imposed to fi- nance the national debt which further reduced domestic profitability, so that “every pecuniary motive impelled [the capitalist] rather to quit than to stay.” A further reason for the “abduction of capital” is found in foreign-trade restrictions generally: A second cause [for the abduction of capital] arose out of the fetters upon trade, the prohibitions against the import of foreign commodities, when, in fact, better and cheaper than our own. This was done in a spirit of retaliation; but he contended, that whatever line of policy other nations pursued, the interest of this nation was different: wherever we could obtain the articles we wanted at the cheapest rate, there we ought to go for them; and wherever they were cheapest, the manufacture would be the most extensive, and the amount of [profit], and invitation to capital, the greate~t.~’ It will be noted that as much emphasis is placed on free trade in commodities in general as on free trade in corn. A similar explanation for the general depression, namely, one which runs in terms of a loss of capital or inadequate domestic investment, is given later in the same month: He conceived that the distress was chiefly to be ascribed to the inadequacy of the capital of the nation to carry on the operations of trade, manufacture, and commerce. But why was the capital more inadequate now than formerly? If the profits on capital were higher, and labour more productive in other countries, it could not be doubted that capital would be transferred to those countries: no proposition in Euclid was clearer than this. Now, he thought they had greatly aggravated this evil by bad legislation, and he had formerly mentioned instances. He had referred to the corn-laws as one example. . . . These laws had tended to raise the price of sustenance, and that had raised the price

56. Ibid., pp. 32-33. 57. Ibid., p. 33.

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of labour, which of course diminished the profit on capital. But of all this evil, the national debt, and the consequent amount of taxation, was the great cause . . . any capital which went out of the country was exonerated from that charge, while the capital which remained was of course compelled to pay a greater proportion of debt and taxes.58 In the spring of 1820 Ricardo stated that Britain would “be the happiest country in the world, and its progress in prosperity would be beyond the power of imagination to conceive, if we got rid of two great evils-the national debt and the corn laws . . . ; and if corn were exported or imported, as in other countries, without restraint, this country, possessing the greatest skill, the greatest industry, the best machinery, and every other advantage in the highest degree, its prosperity and happiness would be incomparably, and almost inconceiv-

ably great.”59 , Now an account of low profits in terms of high corn prices may appear unconvincing in the light of the fact that the early 1820’s were years of low and falling corn prices. To some extent Ricardo’s objective at this time was to counter renewed protectionist pressure in the form of petitions, on the grounds that government steps to raise the corn price, presumably more-or-less permanently or on an average of years, must have detrimental effects upon the general rate of return.60 He spoke also of the danger of a loss of capital abroad if money

58. Speech of 24 Dec. 1819, Works, V, 38. It may be noted that in the event of low profits due to high real wages paid to a fully employed work force, any reduction in demand for labor could be easily absorbed by workers, since there was scope for reduced real wages. (Ricardo insisted on the fact of money-wage flexibility in arguing that reductions in the demand for labor would not generate unemployment in such circumstances: “I can see no reason whatever why they should not fall before many labourers are thrown out of employment.” Ricardo to Malthus, 21 July 1821, Works, IX, 25.) The problem at hand in 1819, however, was to account for unemployment so that Ricardo presumably took it for granted that the reduction in capital relative to population occurred when workers were at or near subsistence, preventing an adequate reduction in real wages. 59. Speech of 30 May 1820, ibid., p. 55. On the same occasion Ricardo is also reported to have maintained that a rise in the corn price due to legislative restrictions upon importation “tended to injure all those who were not interested in the cultivation of the land, by lowering the profits of stock” (ibid., p. 53). 60. For example: “The labouring classes throughout the kingdom were reduced to the greatest distress. That was not the period, therefore, when measures should be taken to increase the price of corn. The agricultural interest had its depression but still it was to be considered as one class, whose prosperity ought not to be forced at the sacrifice of the general good. There was not a more important question than that of the corn laws. Nothing, in his mind, was better calculated to afford general relief than the lowering of the price of corn. It was the first step to that great remedy, the making labour productive.” Speech of 12 May 1820, ibid., p. 47.

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wages were to be pushed up: “If food were high here, and cheap abroad, stock would thus have a tendency to leave the country, and to settle where higher profits could be realised.”61 It is one thing to warn against price-increasing measures and another to explain the contemporary depression in terms of high corn prices and low profits. Nevertheless, such an explanation was given. Of primary importance however is the fact-unnoticed in the secondary literature which draws upon the speeches-that the various interventions by Ricardo of December 1819 and May 1820 which assert that the depression may be explained in terms of low profits (due in part to the Corn Laws) are atypical of his position during the postwar years as a whole. It is possibly because of the continued fall in corn prices thereafter that this position was not further used, but whatever the reason, after mid- 1820 Ricardo again resorted to “fric- tion” and immobility of capital to account for the general depression. 62 Ricardo’s reaction at this time to a concession by J. B. Say, that hoarding might account for the severe depression experienced in France, is worth noting.63 Ricardo objected. that Say “concedes too much.” He insisted that the depression in the various countries listed by Malthus, including Britain, could be accounted for in terms of capital immobility. But it is important to note that his rejection of a failure of demand as a contributory cause of depression was based upon the presumption that there was much capital available and that money wages were low-the precise reverse of the assumptions made in December 1819411 which circumstances, Ricardo insisted, there must be good profit opportunities somewhere in the 61. Speech of 30 May 1820, ibid., p. 50. The “model” Ricardo had in mind is expressed as follows: “The high price of subsistence diminished the profits of capital in the following manner:-the price of manufactured articles-of a piece of cloth €or instance-was made up of the wages of the manufacturer, the charges of management, and the interest of capital. The wages of the labourer were principally made up of what was necessary for subsistence; if grain was high, therefore, the price of labour, which might be before at 50 per cent on the manufactured article, might rise to 60, and being sold to the consumer at the same rate, the 10 per cent (difference) would necessarily be a deduction from the profits of stock.” 62. After January 1816, when a low of 52/6 per quarter was reached compared with 117/10 in January 1813, prices rose again temporarily achieving an average of 96/11 in 1817 and 86/3 in 1818. This upward movement was reversed during 1819, prices falling to 65/10 in December and to only 391- by the close of 1822. Cf. William Smart, Economic Annals of the Nineteenth Century (London, 1910), I, 407, 489, 672 n. Annual average wheat prices are as follows: 1812-126/6; 1813-109/9; 1814-74/4; 181+65/7; 1816-78/6; 1817-96/11; 181&86/3; 1819-74/6; 1820--67/10; 1821-56/1; 1822-44/7; 1823-53/4. See Mitchell, Abstract of British Historical Statistics, p. 488. 63. Letters to Mr. Malthus . . . On the Cause of the Stagnation of Commerce (London, 1821; New York, 1967), p. 49 n. 64. Ricardo to Malthus, 9 Oct. 1820, in Works, VIII, 277-78.

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A certain uneasiness with the renewed reliance on capital immobility in accounting for the depression is apparent, for Ricardo candidly admitted that he could “scarcely account for the length of time that this delusion continue^."^^ But fortunately events were tending to become more cooperative. By March 1821 Ricardo was evidently expecting a return of prosperity; as he made clear in Parliament, it will be recalled, he “could not help feeling that the difficulties of the country were nearly at an end, and that the present unnatural state of depression must soon cease to be felt.”66 It was precisely this view which upset McCulloch, who insisted that as long as the Corn Laws remained in force, any renewal of expansion was impossible, as he found it inconceivable that the extensive distress could be accounted for by a misallocation of capital alone. In his view the rate of profit was low and falling and the prospect was one of continued loss of capital abroad. To summarize briefly: The only explanation consistently given by Ricardo for general depression during the years 1815-21 was a misallocation of capital, although because of the extreme length of the crisis Ricardo himself was by no means satisfied with his own account. The alternative explanation offered in late 1819 and early 1820, implying that features of secular stagnation were actually manifest in consequence of the Corn Laws, was not maintained for long, probably because with falling corn prices and money wages, a low average profit rate could not be convincingly accounted for along these lines.67 It is also noteworthy that even during the speech of 16 December 1819 when Ricardo took the dimmest view of matters, he recommended the immediate redemption of the national debt: “He was one of those who thought that it could be paid off, and that the country was at this moment perfectly competent to pay it off. . . . He was persuaded that the difficulty . . . was not so great as was generally imagined; and he was also convinced that the country had not yet nearly reached the limits of its prosperity and greatness.’’6a Ricardo’s evaluation of Britain’s ability to redeem the debt-which is not made contingent on Corn Law repeal-seems to indicate an underlying con-

65. Ibid., p. 277. 66. Above, at n. 42. 67. We cannot, therefore, accept the evaluation of Jacob H. Hollander, David Ricardo: A Centenary Estimate (Baltimore, 1911), 61, that “the effective cause of socio-economic distress, Ricardo believed, was the disproportion between capital and population. ” Capital misallocation was more consistently maintained as the “effective cause” of the distress in post-war Britain. 68. Works, V, 34-35.

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fidence in long-term prospects which belies the pessimistic tone of the intervention. It is equally significant that even the “temporary” account of depression in terms of low profits and consequential capital outflow-taking for granted relatively high corn prices-tells us little about Ricardo’s position regarding the case of a truly closed economy, dependent on internal agricultural resources but also un- able to export capital. Finally, from the perspective of Ricardian methodology, it is crucial to observe that there is no emphasis (even in 1819-20) upon the secular pattern of rising corn prices in a protected economy; rather the discussion turns simply on the supposed relative differential between British and foreign corn price levels, and the consequentially lower profit rate that exists in the protected system. After the interventions of May 1820, references in Parliament to the detrimental implications of agricultural protection for the rate of return and domestic investment are few and far between. It is a full two years later that Ricardo again alluded to such effects: Of all the evils complained of, he (Mr. R.) was still disposed to think the corn laws the worst. He conceived that were the corn laws once got rid of, and our general policy in these subjects thoroughly revised, this would be the cheapest country in the world; and that, instead of our complaining that capital was withdrawn from us, we should find that capital would come hither from all corners of the civilized world. Indeed, such a result must be certain, if we could once reduce the national debt-a reduction, which, although by some considered to be impracticable, he considered by no means to be so. . . . If this were done, and if the government would consider a right course of policy as to the corn laws, England would be the cheapest country in which a man could live; and it would rise to a state of prosperity, in regard to population and riches, of which, perhaps, the imagina- tions of hon. gentlemen could at present form no idea.6g But bearing in mind the evidence thus far presented-the tenor of the Essay on Profits, the Funding System, the Principles and various

69. Speech of 16 May 1822, Works, V, 187-88. Moreover, in the speech of 9 May 1822, Ricardo emphasized in addition to price volatility, the effects of the Corn Laws in lowering real wages and in forcing resort to high cost production to feed a growing population (ibid., pp. 183-84), and also made the statement-though as a distant prospect-that “there would always be a limit to our greatness while we were growing our own supply of food; but we should always be increasing in wealth and power, whilst we obtained part of it from foreign countries, and devoted our own manufactures to the payment of it” (ibid., p. 180).

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letters regarding the future, the recommendation for the redemption of the national debt in December 1819, the optimistic speech of early 182 1, and its defence against McCulloch’s criticisms-I am inclined to argue that the statements of May 1822 were intended to imply that while prospects were good even in a protected economy, they would be still better with repeal, rather than to imply a danger of profit-rate decline and ultimate stagnation if protection should be retained. IV We do not intend to deny by our argument that statements relating to rising agricultural costs as a secular tendency of sufficient immedi- acy to be of concern to policy makers can be found in Ricardo’s writings. If we consider the Essay on Profits alone we find at the outset the deliberate assumption “that no improvements take place in agriculture, and that capital and population advance in the proper proportion, so that the real wages of labour, continue uniformly the same;-that we may know what peculiar effects are to be ascribed to the growth of capital, the increase of population, and the extension of cultivation, to the more remote, and less fertile land.”70 Yet despite this conscious assumption of constant technology which implies an intention to formulate an analytical proposition we find in a note attached shortly thereafter a statement of historical relevance : The causes, which render the acquisition of an additional quantity of corn more difficult are, in progressive countries, in constant operation, whilst marked improvements in agriculture, or in the implements of husbandry are of less frequent occurrence. If these opposite causes acted with equal effect, corn would be subject only to accidental variation of price, arising from bad seasons, from greater or less real wages of labour, or from an alteration in the value of the precious metals, proceeding from their abundance or car city.^^ Statements such as this, we believe, are lapses from Ricardo’s considered opinion-and it is not difficult to explain such lapses as we shall

70. Works, IV, 12. 71. Ibid., p. 19 n. Also in a note to the Essay (ibid., p. 16 n.) attached to the theoretical discussion of the falling profit rate, a warning is given of capital exportation “after profits have very much fallen.” Now Ricardo implies here that such a phenomenon had already been experienced, for he talks of the establishment of col- onies “with the capital of the mother countries’’ as an indication thereof. Cf. also Principles, Works, I, 93, where reference is made to “improvements in agriculture, the discovery of new markets, whence provisions may be imported, may for a time counteract the tendency to a rise in the price of necessaries.”

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see in section VIII-for the reasons given above, namely, his emphasis upon the stability of the profit rate for two decades or more in consequence of agricultural innovation and upon the probability of further innovation in the future, and the absence of any emphasis upon the prediction of a falling return on capital in the case made for repeal of the Corn Laws. We wish, however, to consider a statement in the Principles which asserts in strong terms the belief that agricultural costs must rise: “no point in political economy can be better established than that a rich country is prevented from increasing in population in the same ratig as a poor country, by the progressive difficulty of providing food. That difficulty must necessarily raise the relative price of food, and give encouragement to its imp~rtation.”~~Now despite this apparently unambiguous statement we believe that it should not be taken as an adequate expression of Ricardo’s actual position. The context is an attempt to demonstrate the fallacy of Smith’s practice of isolating the corn price for special treatment and implicitly ruling out the possibility of changes in the relative price of corn emanating in the agricultural sector. Ricardo’s disagreement was so strong that he tended to express himself without due care. On another occasion Ricardo denied the possibility of discovering any candidate for the measure of value on the grounds that all commodities-including corn-tend to regularly undergo cost reductions .73 The case against Smith might have been equally well made on these grounds. We may add that when actually faced with the charge by Malthus (in the latter’s Principles) that he had “never laid any stress upon the influence of permanent improvements in agriculture on the profits of stock, although it is one of the most important considerations in the whole compass of Political Economy’’ Ricardo strongly objected: “Once more I must say that I lay the very greatest stress upon the influence of permanent improvements in agriculture. The passage quoted refers to a state of things when no improvements are taking place, and therefore the argument built upon it which supposes improvements has no fo~ndation.’’~~Now the “passage quoted’’ in- volves the statement in Ricardo’s Principles of varying rapidity and extent of profit-rate reductions in closed economies with differential agricultural bases. 75 The very weak formulation of diminishing re-

72. Works, I, 373. 73. See “Absolute Value and Exchangeable Value,” (Draft) in Works, IV, 374. 74. Works, 11, 293. (Cannan, Theories of Production and Distribution, p. 131 is misleading in his comments, for he gives Malthus’s criticism but not Ricardo’s reply.) 75. Works, I, 126, quoted above at n. 36.

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turns even under conditions of constant technology in contemporary Britain-“a small but fertile country”-is now even further qualified. We observe finally that in the pamphlet On Protection to Ag- riculture (1822) the notion that agricultural innovations can be envisaged as unpredictable disturbances is totally absent. In the very section formally dealing with “the Effects of a Low Value of Corn on the Rate of Profits,” Ricardo refers-in a manner reminiscent of J. S. Mill’s later “antagonistic principles”-to “two opposite causes operating on the value of corn” in the “progress of society”: In the progress of society there are two opposite causes operating on the value of corn; one, the increase of population, and the necessity of cultivating, at an increased charge, land of an in- ferior quality, which always occasions a rise in the value of corn; the other, improvements in agriculture, or the discovery of new and abundant foreign markets, which always tend to lower the value. Sometimes one predominates, sometimes the other, and the value of corn rises or falls accordingly.76 If we envisage Ricardo’s “prediction” of a falling rate of return as an historical generalization it is always open to us to say that when faced by empirical evidence he “cheated” by lengthening the ‘‘short run”.77 The formulation in the pamphlet of 1822 might then be taken as constituting the formal abandonment of the prediction. In our view, however, it is more accurate to say that Ricardo’s intentions throughout were analytical, not historical, but that occasionally he fell into the error of implying the latter. The formulation in On Protection to Agriculture, in this perspective, constitutes the correction of earlier ambiguities rather than the statement of a new position. V In this section we wish to delve a little further into the rationale for Ricardo’s confidence in future prospects. His optimism may in part be understood in terms of a minimization of the strength of diminishing returns in a country such as Great Britain, and his allowance for agricultural innovation. We have also seen that considerable weight was placed upon the effects of technological progress in manufacturing in preventing or at least in checking any upward trend in money wages due to increasing food prices. It will be recalled that Ricardo alluded to the mixed content of the wage basket in countering McCulloch’s extremely pessimistic view of British prospects because

76. Works, IV, 235. 77. Cf. de Marchi, “The Empirical Content and Longevity of Ricardian Econom- ics,” p. 264. See also his comment (p. 273) on J. S. Mill regarding this practice.

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of the considerable excess which was supposed to exist of domestic over foreign corn prices.78 But Ricardo’s “optimism” may also be appreciated in terms of his treatment of the influences on accumulation. It is true that his formal analysis of this difficult subject was “almost perfunctory”.79 But a close reading of the whole range of his statements relating to the issue, both in the context of taxation of various incomes and in that of secular expansion, indicates a belief that savings and investment might rise even in face of an unchanged rate of return on capital. The costs and prices of “luxury” goods take on a fundamental significance in this perspective. We must permit Ricardo to speak for himself on so important a matter. Considerable textual evidence is available to support the view that savings were related by Ricardo, in part at least, to the real value (in the sense of purchasing power) of net income. In the first place, the entire chapter “On Gross and Net Revenue” relates saving capacity to net income independently of the rate of return. Elsewhere in the Principles both foreign trade and the use of machinery are said to act as “incentives to saving, and to the accumulation of capital” despite constancy of the rate of profit: If, by the introduction of machinery, the generality of the commodities on which revenue was expended fell 20 per cent. in value, I should be enabled to save as effectually as if my revenue had been raised 20 per cent.; but in one case the rate of profits is stationary, in the other it is raised 20 per cent.-If, by the introduction of cheap foreign goods, I can save 20 per cent. from my expenditure, the effect will be precisely the same as if machinery had lowered the expense of their production, but profits would not be raised. . . . Foreign trade, then, though highly beneficial to a country, as it increases the amount and variety of the objects on which revenue may be expended, and affords, by the abundance and cheapness of commodities, incentives to saving, and to the accumulation of capital, has no tendency to raise the profits of stock, unless the commodities imported be of that description on which the wages of labour are expended.80 In a paraphrase of this position we read “that savings may be as effectually made from expenditure as from production; from a reduc-

78. Above, at n. 50. See also Works, I, 93-94, 97; and Ricardo to Malthus, 17 March 1815, discussed above at n. 19. 79. Lord Robbins, The Evolution of Modern Economic Theory (London, 1970), p. 20. 80. Works, I, 131-33.

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tion in the value of commodities, as from a rise in the rate of profit.’’81 The consequence for saving of an increase in the purchasing power of net income (specifically profits in this context)-independently of the rate of return-plays a central role in the chapter “On Machinery” added in 1821; here the effects of technical change on savings by way of the increased purchasing power of nominally unchanged profits is strongly emphasized: As, however, the power of saving from revenue to add to capital, must depend on the efficiency of the net revenue, to satisfy the wants of the capitalist, it could not fail to follow from the reduction in the price of commodities consequent on the introduction of machinery, that with the same wants he would have increased means of saving,-increased facility of transferring revenue into capital.82

. A final and quite fundamental illustration will also be found in the closing chapter of the Principles dealing with Malthus’s views on rent. The central theme relates to the effects of a freer corn trade on the real or commodity counterpart of an unchanged nominal net income, reflecting increased real wages or real profits or both, and the consequential increase in the wherewithal for higher consumption, accumulation and taxation. In brief, at least in this context, the effects on accumulation even of cheaper corn imports work their way through by influencing the purchasing power of net income rather than the rate of profits. Our conclusion is that, for Ricardo, technical progress and foreign trade affecting the prices of goods in general-not merely wage

81. Works, I, 166-67. In fact “by increasing my profits from 1000 1. to 1200 l., whilst prices continue the same, my power of increasing my capital by savings is increased, but it is not increased so much as it would be if my profits continued as before, whilst commodities were so lowered in price, that 800 1. would procure me as much as 1000 1. purchased before.” Cf. also ibid., pp. 323-24, where change in the

profit rate and change in the purchasing power of total profits are distinguished. , 82. Ibid., p. 390. Cf. p. 396: “the increase of net incomes, estimated in commodities, which is always the consequence of improved machinery, will lead to new savings and accumulation.” To a contention by J. B. Say, following Turgot, that an increase in the revenue yielded in a single trade-in this case due to a reduction in market dues on fish-will lead to a net increase in savings, Ricardo raised objections which run entirely in terms of the “stimulus to accumulation” in the sense of the increased “ability” to save quite independently of the rate of return: “I have my doubts whether [the tax change] gave any great stimulus to accumulation. . . . The ability of the country to accumulate, was only increased by the difference obtained in the business in which capital was newly engaged, and those obtained in that from which it was withdrawn” (ibid., p. 238).

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goods-play at least as great a role in determining the rate of accumulation as does the rate of return on capital. Thus to the extent that Ricardo recognized Britain’s great advantage in the manufacturing sector we have a further clue to his optimism.83It is worth pointing out that even in a closed economy not all resources would be devoted to agriculture. While repeal would permit an expansion of the manufacturing sector, both in absolute terms and relative to the agricultural sector, there is no reason why advance should not be rapid even without cheap foreign corn in the event that technical change is raising the purchasing power of net It is clear then that the slowing down of the rate of accumulation does not flow “automati- cally” from Ricardian analysis. To the extent that the latter is used as the basis for historical prediction there are at least as many forces of a stimulatory variety to be taken into consideration as forces which tend to depress growth potential. VI We turn in this section and the next to Ricardo’s further objections to the Corn Laws, namely, those which do not relate to the rate of return.85As far as concerns the pamphlet On Protection to Agricul-

83. For Ricardo’s emphasis upon technical progress and the falling secular “tendency” of manufacturing prices see Works, I, 93-94 and 97. (By contrast, in the strict “model” of the chapters “On Wages” and “On Profits” it is assumed that manufactured goods’ prices are constant or increase due to their raw material content. Cf. ibid., pp. 103-4, 119.) 84. While the comparative-cost theory illustrated in the chapter “On Foreign Trade” implies complete specialization, Ricardo, it is clear, believed that with free trade Britain would continue to produce agricultural as well as manufactured produce. However,’while Ricardo frequently forecast an absolute reduction in agricultural output upon repeal of the Corn Laws, he gives the impression on occasion of only a relative decline. Cf. the speech of 7 May 1822, Works, V, 180: “The hon. gentleman might perhaps, think that a manufacturing country could not be so happy as an agricultural country. But he might as well complain of a man’s growing old as of such a change in our national condition. Nations grow old as well as individuals; and in proportion as they grow old, populous and wealthy must they become manufacturers. If things were allowed to take their own course, we should undoubtedly become a great manufacturing country, but we should remain a great agricultural country also.” (On the matter of complete or partial specialization see J. A. Schumpeter, History of Economic Analysis, p. 614.) 85. Professor O’Brien’s study in classical economics is pertinent. Of the principal defects of the contemporary system of Corn Laws, O’Brien writes, with reference to McCulloch’s position, it was “the price fluctuation, which, [McCulloch] believed, they induced [and] not the Ricardian stagnation thesis [which] received his main emphasis’’; this matter “was a constantly recurring theme of his writings on the subject,” for in McCulloch’s opinion “price fluctuations were the root cause of agricultural distress.” J. R. McCulloch: A Study in Classical Economics, pp. 378-79; cf. p. 383: “The burden of McCulloch’s case against the Corn Laws was not the Ricar- dian stagnation thesis but the price fluctuation argument.” A secondary objection

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ture the weight of emphasis was placed by Ricardo upon the excessive grain-price fluctuations engendered by the protective system. An entire section is indeed devoted to “the Effects of a Low Value of Corn on the Rate of Profits,” but section 4 deals with “the Effect of Abundant Crops on the Price of Corn,” section 7 with the proposition that “Under a system of Protecting Duties . . . Prices cannot be otherwise than fluctuating”, and sections 5 and 9 both emphasize excess supply as the cause of the contemporary agricultural crisis.86 In the Commons a very great deal of attention was paid by Ricardo to the question of corn price instability due to protection. Although he conceded that general deflation had contributed to low corn prices, Ricardo in 1822-when the manufacturing depression had already eased-attributed the continuing agricultural distress largely to excess grain supply.87 In the following year the same view is expressed, with particular emphasis on the fact that manufacturing was now prosperous.88 Ultimate responsibility lay with the Corn Laws, for they encouraged the maintenance of high-cost (marginal) opera-

raised by McCulloch to the Corn Laws, O’Brien continues, “was the basic Ricardian objection that the Corn Laws raised food prices by extending the margin of cultivation. This depressed profits, he argued by the usual process of reasoning; which in turn checked capital accumulation and caused capital emigration. Some such mechanism certainly underlay a lot of his thought . . . but it was far from being the keystone of his position” (ibid., p. 386). Now it is not my intention to dispute this evaluation of McCulloch. (It is however surprising to find, p. 397 n., included among the extensive body of evidence for the centrality of the “price-fluctuation” thesis, as distinct from the “stagnation” thesis, McCulloch’s letter to Ricardo of 13 March 1821 regarding the latter’s speech of the same month. While McCulloch does refer to the former issue in this letter, the weight of emphasis is without a shadow of doubt upon the danger of capital emigration and stagnation, as we have seen.) Our point is simply that 0’Brien, while minimizing McCulloch’s concern with stagnation, correspondingly magnifies that of Ricardo and plays down the theme of price fluctuation as an important concern. It is with this weighting that I take issue in this section in the light of evidence drawn from Ricardo’s pamphlet On Protection to Agriculture (l822), as well as from his analysis in Parliament of the postwar agricultural depression. 86. Works, IV, 201 f. On the “secular” dangers of protection see esp. pp. 210-13, 235-40; on She “seasonal” dangers, see esp. pp. 209, 219-22, 228, 229-30, 240-53, 255-61, 262-63. (In his account Professor Blaug adopted the position that the matter of price instability “was a secondary element in the Ricardian attack on the corn laws.” Ricardian Economics, p. 211. But he gives only one reference, pp. 240-42, to this pamphlet in illustrating this contention. 87. Speech before House of Commons, 10 July 1822, Works, V, 233. In an earlier speech (5 March 1822) Ricardo conceded, it is reported, “that, up to a certain point, for instance, 10 per cent, great loss had been derived from the change in our cur- rency; but that the rest of the distress was to be attributed to the increased quantity of produce” (ibid., p. 142). 88. Speech of 11 June 1823, ibid., pp. 314-15. For examples of similar accounts of the agricultural depression made in speeches of 1821-22 which emphasize excess supply due to excellent harvests, Irish imports, and recent agricultural “improvements” and “extensions,” see ibid., pp. 94, 125.

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tions in excess of foreign cost structures, and thus because of high demand inelasticity for farm produce, necessitated extreme price reductions before increased sales could be made abroad during a series of good harvests. According to this argument free trade might not permit lower corn prices than those actually ruling during the early 1820’s, but there would be greater stability at a level reflecting a cost structure more in line with that abroad. This argument is outlined on numerous occasions: The low price of corn was to be ascribed to the very large importation from Ireland, to the productive harvest, to the very great abundance of corn that was in the country. The demand was limited, because no man could eat more than a certain quantity of bread. If there was more than the usual and ordinary quantity in the market, the price must of necessity fall. We had no outlet for corn, because our prices were higher than in any other country ....89 With regard to the depression in agriculture, he believed it was a great deal owing to the laws which were enacted for the purpose of protecting it. It was certainly desirable that those engaged in the production of corn should have a vent when an excess of supply existed. When two or three good harvests followed in succession, we might, if prices were at all on a level with those on the continent, export it after a fall of three or four shillings a quarter; but at present there must be a destructive fall before it could be sent abroad.g0 The foregoing extracts are representative only. The issue of severe price fluctuations in consequence of protection is raised on at least nine other occasions in speeches during the period May 1820 to Feb- ruary 1825.91Such fluctuations, Ricardo insisted, must be expected as

89. Speech of 9 April 1821, ibid., p. 108. 90. Speech of 8 Feb. 1821, ibid., pp. 73-74. 91. Cf. the following speeches: 30 May 1820, ibid., p. 55; 26 Feb. 1821, pp. 78-79; 18 Feb. 1822, pp. 132-33; 3 April 1822, pp. 150-52; 29 April 1822, p. 157; 7 May 1822, pp. 170-72; 9 May 1822, p. 181; 3 June 1822, 196 n.; 26 Feb. 1823, pp. 256-58. Ricardo emphasized in these speeches and in his On Protection to Agriculture not only the excessive price reductions in periods of good harvest but also the sudden and massive inflows of corn in poor seasons when under the contemporary system the price reached 801- per quarter and the ports were opened for three months. The matter of price volatility in consequence of agricultural protection is raised in the Essay on Profits, Works, IV, 28-30; and the Principles, Works, I, 272. See also Ricardo to Trower, 20 Feb. 1822, Works, IX, 166, and ibid., pp. 157-58, 160, 186, and Ricardo to McCulloch, 23 March 1821, discussed above at notes 47 and 48.

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long as the Corn Laws remained in operation, and the only solution was the withdrawal of high-cost land: But to the agriculturists he would say, that the only effectual remedy for their case, was to regulate their supply by the public demand: and, if they did not take special care of that, all other efforts must be unavailing. . , . It was not very long ago since they were all in a state of the greatest alarm, on the account of the distressed manufacturers. It was conceived that our manufacturers were declining and the most gloomy apprehensions were indulged on their behalf. But he then took the liberty of intimat- ing his opinion, that those distresses were not permanent: and, happily, his predictions had been fulfilled. He was disposed to hope equally well of the agricultural interests; but not while such a system of corn laws as the present existed. He thought it was most desirable to fix some system by which the prices of corn might be rendered less variable, and by which a proper and adequate compensation might be secured to the grower.92 By contrast, the problem of low profits and capital exportation as a consequence of protection plays little or no part in Ricardo’s speeches except during the brief period December 1819-May 1820. Neither was the issue emphasized as a future prospect. It is difficult to understand how it can be maintained that the matter of price varia- bility was a “secondary” concern of Ricardo in his analysis of the effects of protection. It was in fact a primary concern with regard both to his evaluation of actual and future conditions. In concluding the argument of this section we wish to preclude two possible objections. In the first place, it may perhaps be suggested that Ricardo’s position cannot be accurately evaluated from the contents of his speeches; to base his case on the standard model before a forum of non-economists would have been to speak above the heads of his listeners. But the fact is that on at least one occasiong3 Ricardo did manage to formulate the basic model- according to which a rise in the corn price will reduce profits by way of its effect on the money wages paid by producers whose selling prices remain unchanged-with commendable precision and simplicity, A second objection might be phrased in the following terms. The severe agricultural crisis of the early 1820’s was attributed to the Corn Laws insofar as the latter were responsible for excess supplies at going cost prices during periods of unusually good harvest. It is

92. Speech of 18 Feb. 1822, ibid., pp. 132-33. 93. See above, n.61.

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scarcely surprising that Ricardo quickly abandoned his resort to capital loss abroad in attempting to account for the protracted industrial depression, for within his theoretical scheme profit opportunities must on average have been satisfactory under such circumstances. The picture which we have drawn above wherein greater attention was paid to the issue of price volatility than to low profits due to high cereal prices in Ricardo’s discussions of the Corn Laws may then reflect nothing more than the unusual state of the agricultural sector. Given “normal” harvest conditions when prices approached (marginal) cost levels, Ricardo would perhaps have placed greater emphasis upon the profit-reducing as distinct from the seasonal effects of protection. The evidence both direct and circumstantial does not, however, bear out this view of the matter. In the first place, Ricardo in his optimistic speeches before Parliament early in 182 1 regarding future growth prospects, and in his reply to McCulloch’s criticism thereof, clearly had in mind a situation in which prices are at their normal level and it is with regard to these circumstances that Ricardo played down the problem of low profits and capital The same must be said of his comments regarding the future in December 1819.95 He did not presume exceptional circumstances when addressing himself to long-run growth prospects. This conclusion is reinforced by the evidence presented above in section 11. Moreover, the kind of situation in agriculture ruling in the early 1820’s was envisaged as a recurring phenomenon in a protected economy. In brief, Ricardo’s optimism regarding future growth and also, we may add, his pessimism regarding future corn-price volatility should not be interpreted as a reflection of fortuitous circumstances. VII Ricardo also allowed a conspicuous role for the allocative disadvantages flowing from agricultural protection. In the Principles the efficiency losses due to the Corn Laws are emphasized particularly in the chapter “On Bounties on Exportation”: The sole effect of high duties on the importation either of manufactures or of corn, or of a bounty on their exportation, is to

94. McCulloch had referred to an “average” price twice as high as that abroad. Ricardo recognized a differential, but insisted that McCulloch’s estimate was grossly exaggerated. Cf., also Ricardo to McCulloch, 25 April 1821, Works, VIII, 374, in which Ricardo states his belief that British costs exceeded foreign costs-in contrast to Tooke’s position-in a reference to average conditions. 95. Cf. above, pp. 22-23.

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divert a portion of capital to an employment, which it would not naturally seek. It causes a pernicious distribution of the general funds of the society-it bribes a manufacturer to commence or continue in a comparatively less profitable employment. It is the worst species of taxation, for it does not give the foreign country all that it takes away from the home country, the balance of loss being made up by the less advantageous distribution of the general capital. 96 The original index, under the heading “importance to Great Bri- tain of freedom of Trade,” sends us to passages in the same chapter objecting on grounds of welfare loss to the imposition of retaliatory duties upon corn imports: The injurious effects of the mercantile system have been fully exposed by Dr. Smith; the whole aim of that system was to raise the price of commodities, in the home market, by prohibiting foreign competition; but this system was no more injurious to the agricultural classes than to any other part of the community. By forcing capital into channels where it would not otherwise flow, it diminished the whole amount of commodities produced. . . . Because the cost of production, and, therefore, the prices of various manufactured commodities, are raised to the consumer by one error of legislation, the country had been called upon, on the plea of justice, quickly to submit to fresh exactions. Because we all pay an additional price for our linen, muslin, and cottons, it is thought just that we should pay also an additional price for our corn. Because, in the general distribution of the labour of the world, we have prevented the greatest amount of productions from being obtained, by our portion of that labour, in manufactured commodities, we should further punish ourselves by diminishing the productive powers of the general labour in the supply of raw produce. It would be much wiser to acknowledge the errors which a mistaken policy has induced us to adopt, and immediately to commence a gradual recurrence to the sound principles of an universally free trade.97 In an earlier chapter dealing with complaints that liberalization would cause a loss of agricultural investments Ricardo points out:

96. Works, I, 314. 97. Ibid., pp. 316-18; cf. pp. 418-19 on the advantages of a free corn trade along similar lines: “. . . the real diminution, even in money value, of all the commodities in the country, corn included, would be equal only to the loss of the landlords, by the reduction of their rents, while quantity of objects of enjoyment would be greatly increased .”

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“They do not see that the end of all commerce is to increase production, and that by increasing production, though you may occasion partial loss, you increase the general happines~.”~~ This welfare theme is also conspicuous in the Notes on Malthus. In reply to Malthus’s claim that protection may generate a social return which exceeds the private return (as measured by the profit rate), since rents would contain an element representing a return on permanent land improvements undertaken solely in a protected system, Ricardo replies very forcibly that even if “every word you have said be true, we are for an unfettered corn trade, if it is to give us a value no matter, whether high or low, which will give us an abundance of conveniencies and luxuries.” More specifically, he commented: “The only question of importance, in fact is whether we could buy our corn at home or abroad at the least expence of capital and labour-and we are to judge of this only by a comparison of the quantity we can import with a given capital and the quantity we can grow with an equal amount of capital.”99 As a further example we refer to the correspondence. Here in a letter to Trower commenting on the latter’s objections to McCul- loch’s Edinburgh Review article “Agricultural Distress,” Ricardo commented:

“The extra rents to the landlord are not the measure of the whole loss sustained by the public in consequence of the Corn law,” says M’Culloch, and to this doctrine you demur. I apprehend he means to say that the loss to the country is a real one. It must not be supposed that because the landlords get a high price, which is paid by the consumer, the whole inconvenience to the country is an improper and unjustifiable transfer of property-it is much more than this, the landlord does not gain what the consumer loses-there is a real diminution of production, and the real loss is to be measured by such diminution of production, without any regard to price or value.1oo Before Parliament the same case on efficiency grounds is made:

he maintained the principle of a free trade in corn; not altogether a free trade in practice, but the general right should be allowed to every man, and every class of men, to apply their labour and

98. Ibid., p. 271; cf. p. 269. 99. Works, 11, 206. 100. Ricardo to Trower, 20 May 1822, Works, IX, 197-98.

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resources in the most profitable way for themselves, which would be also the most profitable for the country. . . .lol Similarly in the same speech: The end proposed in the employment of all capital was to obtain abundant production. He would say that if he could get corn so much cheaper than it could be grown, he deemed the capital employed in growing corn, to the exclusion of corn more cheaply to be acquired, a nuisance. Better such capital were altogether annihilated. But it would not be annihilated. The greater part of it would be turned into profitable channels.lo2 Any balanced. view, we conclude, requires that considerable weight be given to Ricardo’s “efficiency” or “welfare” case in favor of Corn Law repeal. This case was made quite independently of that relating to the effects of repeal upon the profit rate. VIII In this study we have shown that Ricardo himself did not draw pessimistic conclusions from his theoretical growth model-that the “dynamism of the British economy,” despite protection, was quite apparent to him. This is reflected in an unwillingness to give much weight to a downward trend in the profit rate and deceleration of accumulation in making his case for Corn Law repeal. But there can also be little doubt that Ricardo did not believe that his model was “irrelevant” in consequence of the prospect of rapid future expansion (and it certainly appears incorrect to say that after 1846 the Ricardian theoretical structure was of little practical relevance because of its “failure” as a predictive engine); for Ricardo had never intended to draw from the model the implication of a general running down of the growth potential, at least within a time horizon of much interest to policymakers. (Moreover, if we do use Ricardian theory for historical prediction, the role of ongoing technological progress in manufacturing takes on a significance for accumulation far beyond that normally accorded to it in those secondary accounts which pay so much attention to the agricultural sector.) In his recent work, Epistemics and Economics, Professor Shackle has urged that a theory ought to be “a classificatory one, putting situations in this box and that according to what can happen as a sequel to it. Theories which tell us what will happen are claiming too

101. Speech of 7 March 1821, Works, V, 82. 102. Ibid., p. 86.

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much.”lo3 This position, we maintain, was precisely that of Ricardo. It is of great historical interest that Richard Whately-ne of the group of so-called “dissenters”-drew the pertinent distinction between the notion of a “tendency” in the sense of “a cause, which if operating unimpeded should produce [a particular] result,” and in the sense of “the existence of such a state of things that that result may be expected to take place,” but he did not take Ricardo to task for predicting a tendency towards a falling profit rate in the second sense and he explicitly exonerated Malthus.lo4 It is also noteworthy that Mountifort Longfield-usually designated as one of the most important of the “dissenters” from Ricardianism-believed the conceptions of diminishing agricultural returns and differential rent to be valuable analytical devices despite awareness not only of the potentialities for new technology, but also (at least in the Irish case) of the existence of a body of yet unapplied knowledge readily available for adoption in support of a rising ~opulation.’~~The historical fact that “corn is not constantly and rapidly increasing in price” was not seen as negating the validity and function of the analytical conceptions. Nevertheless, it is worth raising the question why Ricardo chose to adopt an analytical framework incorporating the principle of diminishing agricultural returns and the stationary state (albeit as an ultimate point of reference). In brief, we might wonder why-if the argument of this study is an accurate reflection of Ricardo’s position-this particular “classificatory” model was adopted. A de- finitive answer to a question of this nature cannot be given. At best a number of suggestions may be made as possible candidates for a partial reply. It is vital to keep in mind that Ricardo was engaged in combatting alternative theories of profit-rate determination and explanations of the falling profit rate. He objected above all to the Smithian analysis which ran in terms of “competition of capitals” and that of Malthus, which implied the possibility of overinvestment, both in general and as applied in particular to the notion of a falling rate of profit.lo6 Ricardo’s construction of the analytical growth model incorporating

103. Epistemics and Economics: A Critique of Economic Doctrines (Cambridge, 1972), pp. 72-73. 104. Introductory Lectures on Political Economy 2d ed. (London, 1832), pp. 249-50. On Whately’s distinction see the remarks by de Marchi, “The Empirical Con- tent and Longevity of Ricardian Economics,” pp.’ 260‘f. 105. The Economic Writings of Mountifort Longfield (New York, 1971),.pp. 140 f. 106. Cf. Ricardo’s observation in the Notes on Malthus, Works, 11, 132: “It is here inferred that a fall of profits is a necessary consequence of an accumulation of capital. No mistake can be greater.”

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diminishing returns may be envisaged as the reflection of an effort to demonstrate that there can be no secular profit rate decline-no matter how much capital is accumulated-unless “wages” rise permanently. The form taken by the model was thus dictated by a particular issue raised in the contemporary literature. lo7 To say that profits will fall secularly only in the event of an upward trend in “wages” is not necessarily to assert the existence of such a trend as an historical phenomenon. It is, however, probable that the notion of ultimate stationarity-and thus a period during which the profit rate would be falling-was “taken for granted” by Ricardo,lo8 although we emphasize as a phenomenon which was of relevance only after so extended a period that he did not see fit to make it the basis for his policy recomrnendati~ns.~~~A word is in order regarding this conception. It is evident that from the purely analytical point of view there is something very appealing about the notion of “equilibrium” and the movement towards equilibrium. Certainly more attention was paid by Ricardo himself in his exposition of the basic growth model to the course of the economy over the declining phase of the rate of wages than to the initial phase of rising wages.ll0 There is some evidence

107. It is important to emphasize that the Corn Law question debated in Parlia- ment (1813-14) was not necessarily the stimulus, or the only stimulus, for Ricardo’s attention to profit theory. On this matter see J. H. Hollander, David Ricardo: A Centenary Estimate, p. 118; G. S. L. Tucker, “The Origin of Ricardo’s Theory of Profits,” Economicu 21 (Nov. 1954): 320 f. 108. Cf. Schumpeter, History of Economic Analysis, p. 652: Ricardo (and West) “like everyone else” took the historical fall in the rate of interest “to be an indisput- able fact.” But G. S. L. Tucker, Progress and Profits, p. 158, maintains that in fact while “in the discussion of the early nineteenth century some writers continued to refer to a supposed downward trend of profits and interest over the centuries . . . the interest now shown by economists in theories of profits seems to have been stimu- lated mainly by a desire to account for the facts of contemporary experience and to provide a guide for economic policy in post-war Britain, rather than to explain the course of a secular decline in the earnings of capital.” 109. See in particular the reference (above at 11.41) to the notion of continued accumulation “till that distant time, which because of its distance, Mr. Malthus says should not damp our ardour.” Even the state of the profit rate one century ahead was an open question (above at n.40). (See also the Principles, Works, I, 217, where Ricardo speaks of “the lands, which are now taken into cultivation” as “much in- ferior to the lands in cultivation _three centuries ago.”) 110. But recent mathematical renditions in the secondary literature have tended to go overboard and leave a false impression of the nature of Ricardian economics. We have in mind, for example, the notion that Ricardo undertook his analysis of the growth process on the assumption that all demographic responses are already achieved so that commodity wages are always equal to the subsistence wage, or the equivalent assumption that population responses occur almost instantaneously so that the economy can be conceived to advance with wages at subsistence. See for example L.L. Pasinetti, Growth and Income Distribution: Essays in Economic Theory (Cam- bridge, 1974) pp. 1-28.

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that Ricardo took for granted the necessity for an ultimate end to growth on “aesthetic” grounds, as it were: “. . . profits do not necessarily fall with the increase of the quantity of capital because the demand for capital is infinite and is governed by the same law as population itself. They are both checked by the rise in the price of food, and the consequent increase in the value of labour. If there were no such rise what could prevent population and capital from increasing without limit?”111It is this “aesthetic” consideration which we suggest contributes to Ricardo’s formulations. There is a further aspect to the issue which we are now consider- ing. The principle of diminishing returns had for Ricardo a theoretical significance quite apart from its utilization in the analysis of secular profit-rate movements. We have in mind the corollary of the principle, namely, that at the various margins rent is absent, thus permitting the treatment of the distribution problem in terms of profits and wages alone,112 and in particular generating the formulation of the inverse profit-wage relationship. This ‘‘fundamental theorem of distribution” was essential in the analysis of a very wide range of issues unrelated to secular growth problems’ l3 and subsequently proved quite fundamental for John Stuart Mill (and Marx) in treating the question whether or not trade unions are able to raise real wages.114It is in fact our impression that more careful attention was devoted by Ricardo to the proof of the fundamental theorem of distribution-and various applications-than to the profit-rate trend even when we take into consideration Ricardo’s purely analytical preoccupations. This article originated in a submission prepared for the Sixth International Conference on Economic History, Copenhagen, August 1974. I have since had the benefit of a good deal of welcome criticism, for which I would like to thank V. W. Bladen, Mark Blaug, R. Brecker, Giovanni Caravale, Vani Malagola, Dennis O’Brien, Don Patinkin, W. J. Samuels, and M. P. Schneider. I am particularly grateful to Neil de Marchi and G.L.S. Tucker for their constructive suggestions. 111. Ricardo to Malthus, 17 Oct. 1815, Works, VI, 301. (My emphasis.) 112. See in particular Ricardo to McCulloch, 13 June 1820, Works, VIII, 194, where he observes that “by getting rid of rent . . . the distribution between capitalist and labourer becomes a much more simple consideration.” On the role of the differential rent conception in Ricardian economics see also Schumpeter, History of Economic Analysis, pp. 569, 673, 675-76. 113. Ricardo’s use of the model to deal with the distributional effects of agricultural innovation is revealing. The weight of emphasis is upon the immediate or short- run effects on the profit rate (and rent) rather than the long-term or secular effects. (This is true also of the anlaysis of the effects of Corn Law repeal, as we have observed on several occasions.) For discussions of this issue see Cannan, Theories of Production and Distribution, p. 309; M. J. Gootzeit, “The Corn Laws and Wage Adjustment in a Short-Run Ricardian Model, “History of Political Economy 5 (Spring 1973): 50-71; and D. P. O’Brien, The Classical Economists (Oxford, 1975), p. 130. 114. Cf. David McLellan, Karl Marx, His Life and Thoughr (London, 1973), pp. 369-70; J. S. Mill, Collected Works (Toronto, 1972) XVII, 1901-10.

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