I arrived in London this morning and found your kind letter, which I ought to have answered immediately, as you could not otherwise know whether I accepted your kind invitation, before the time that you might expect me. The truth is I forgot the day of the week, and was not aware till I got home that we were so near Saturday. I very much regret that I shall not be able to avail myself of Mrs. Malthus' and your kindness, as I have engagements here which will prevent me from leaving town till I return to Gatcomb.
You mistake me if you suppose me to say that under no circumstances of facility of production profits could fall. What I say is that profits will rise when wages fall, and, as one of the main causes of the fall of wages is cheap food and necessaries, it is probable that with facility of production, or cheap food and necessaries, profits would rise. At the very time that the labour of a certain number of men may produce on such land as pays no rent 1100 instead of 1000 quarters of corn, and when corn falls in consequence from £5 to £4 10s. per quarter, the money as well as the corn wages of labour may rise, for capital may have increased at a very rapid rate, and labourers at a slow rate, in which case profits would fall and not rise. Under these very peculiar circumstances of higher money wages with a lower price of necessaries, the wages of labour would be in an unusual state, and would shortly revert to the old standard, when profits would feel the benefit. All I mean to contend for is that profits depend on wages, wages under common circumstances on the price of food and necessaries, and the price of food and necessaries on the fertility of the last cultivated land. In all cases it is perhaps true that rent will depend upon the demand compared with the supply of good land, and wages on the demand compared with the supply of labour, if it be allowed that the price of necessaries influence the demand and supply of labour.
I do not quite understand the expression that profits depend on the demand compared with the supply of capital. What would you say of two countries in [which] there are precisely equal capitals, where wages [are] also equal, and where the population is precisely in the same number. Would the demand compared with the supply of capital be the same in both? If you say they would, I ask whether their rate of profits would be the same under any other supposition but that of their land being exactly of the same degree of fertility? To me it appears quite probable that the ordinary and usual rate of profits might in one be 20 and in the other only 15 per cent., or in any other proportions....
Believe me,
Ever yours,
David Ricardo.
LI.
London, 14th Oct., 1816.
My dear Sir,
My stay in London will not be prolonged beyond Friday next. I hope it will be convenient to you to come up before. On Thursday I shall be disengaged and will meet you at any place in London that may best suit you, unless you will dine with me at my brother's at Bow. His house is small, and I fear he has not, now we are with him, a spare bed to offer, and you may not like to travel so far at night. If so, let us meet in the city and get our dinner there.
The money wages of labour are, I apprehend, generally regulated by facility of production. With an abundant production too I think that a less proportion of the whole will be given to the landlords, and more will remain for the other two classes, of capitalists and labourers; but of this increased quantity a greater proportion will be given to capitalists and a less proportion to labourers. Now, though what you call the real wages of labour[140] (but which I think a wrong term) will increase, the money wages will fall. But this will not be the case with profits; what you would call real profits would increase, but so would also money profits. Under the circumstances then that I have supposed, the rate of profits would rise though money wages would fall. The difference between us is this. I say that with every facility or difficulty of production, of the quantity of necessaries, that is to be divided between profits and wages, different proportions will be given to each, and that money will accurately show those proportions. You appear to me to think that profits do not depend on the division of the produce, and that money wages may as often rise with facility of production as fall.