My dear Sir,
I hope we shall be more fortunate in meeting, when I again visit London.
You think that the low price of labour which has lately prevailed contradicts my theory of profits depending on wages, because the rate of interest is at the same time very low. If interest and profits invariably moved in the same degree and in the same direction, my theory might be plausibly opposed; but I consider this as by no means the case. Although interest is undoubtedly ultimately regulated by profits, rising when they are high and falling when they are low, yet there are considerable intervals during which a low rate of interest is compatible with a high rate of profit; and this generally occurs when capital is moving from the employments of war to those of peace. If goods do not vary in price and the cost of manufacturing them falls, it is self-evident that profits must rise; and, if goods do fall in price generally, then it is not the value of goods or of labour which falls, but the value of the medium in which they are paid which rises, and then my theory does not require any rise of profits; they may even fall.
You ask me if I can show you the fallacy of the following statement: 'Capital is wholly employed in the purchase of materials and machinery and the maintenance of labour. If, from any cause whatever, materials, machinery and the maintenance of the labourer and his wages fall considerably in money value, is it possible that the same amount of monied capital can be employed in the country?' I answer that it is possible but by no means probable. Suppose the mines were to produce a diminished quantity of the precious metals, at the same time that materials and machinery were greatly increased in quantity, might not the increased aggregate quantity of materials and machinery be of a greater money value than before, although each particular portion should be at a less? Might we not by importation appropriate to ourselves a larger proportion of the mass of money distributed amongst all the countries of the world? I cannot doubt the possibility of the case.
In your argument about the stimulus of increased value and the effects of demand and supply on future wealth, you do not really differ from my views on this subject so much as you suppose, for I make profits and wealth to depend on the real cheapness of labour, and so do you, for you say that the evils of a dearth will often be more than counteracted as regards wealth, by the great stimulus which it may give to industry. I say the same, for I contend that the evils of a dearth fall exclusively on the labouring classes, that they perform frequently more labour not only without receiving the same allowance of food and necessaries, but often without receiving the same value for wages or the same recompense in money, whilst everything is dearer. When this happens, profits, which always depend on the value of labour, must necessarily rise.
I thought I had written to you about the additional matter in your excellent work[172], although I had not given it all the examination I intended. I read it as I was travelling and noticed the pages wherever I saw the shadow of a difference between us, that I might look at the passages again when I got home and give them my best consideration[*][173]. On my passing through London when I returned from France, I looked for your book, as I expected you had sent me a copy, which I think you kindly told me you would do; but Mrs. Ricardo had jumbled that and many other books in a wardrobe, and it could not be got at till I went to town. I have it now here and have been reading all the new matter again, and am surprised at the little that I can discover, with the utmost ingenuity, to differ from.
[*] [Foot-note, eventually ousting the text.] In every part you are exceedingly clear, and time only is wanted to carry conviction to every mind. The chief difference between us is whether food or population precedes. I could almost agree with the statement of the question in p. 47 of third vol., which I think is in strict conformity with Sir J. Steuart's opinion. In speaking of the fall of wages you only once mention corn wages, but must always mean corn wages and not money wages. In the note to p. 438 of the third vol. you agree to my doctrine, but I think in pp. 446, 456 and 457 you forget the admission you had before made, 497 [sic]. You agree with Smith that the monopoly of the Colony trade raises profits. 502 is in my opinion wrong and inconsistent with 438. I differ a little from your views in 506. You do not always appear to me to admit that the tendency of the Poor Laws is to increase the quantity of food to be divided, but assume in some places that the same quantity is to be divided among a larger number. I can neither agree with Adam Smith nor with you in 326, 328: a maximum tends to discourage future production; an undue increase of wages, or poor laws, tend to promote it. 360, a fall in the price of commodities and a rise in the value of money are spoken of as the same thing. 361, a diminution of production is another way of expressing an abatement of demand. 371, a combination among the workmen would increase the amount of money to be divided amongst the labouring class. These you will observe are slight objections, and I make them that I may preserve my consistency. They would not be understood by the mass of readers, but to you who are acquainted with my peculiar views, if you please, they need no explanation....
Ever yours,
David Ricardo.
LXIV.
Gatcomb Park, 16 Dec., 1817.