There is a certain analogy between Ricardo and a very different writer, Bishop Butler. Each of them produced a great effect by a short treatise, and in each case the book owed very little to the ordinary literary graces. Ricardo's want of literary training, or his natural difficulty of utterance, made his style still worse than Butler's; but, like Butler, he commands our respect by his obvious sincerity and earnestness. He is content when he has so expressed his argument that it can be seized by an attentive reader. He is incapable of, or indifferent to, clear and orderly exposition of principles. The logic is there, if you will take the trouble to look for it. Perhaps we ought to be flattered by this tacit reliance upon our patience. 'You,' Ricardo, like Butler, seems to say to us, 'are anxious for truth: you do not care for ornament, and may be trusted to work out the full application of my principles.' In another respect the two are alike. Butler's argument has impressed many readers as a demolition of his own case. It provokes revolt instead of adhesion. Ricardo, an orthodox economist, laid down principles which were adopted by Socialists to upset his own assumptions. Such a God as you worship, said Butler's opponents, is an unjust being, and therefore worse than no God. Such a system as you describe, said Ricardo's opponents, is an embodiment of injustice, and therefore to be radically destroyed. Admitting the logic, the argument may be read as a reductio ad absurdum in both cases.
Ricardo has involved himself in certain special difficulties. In the first place, he presupposes familiarity with Adam Smith. The Principles is a running comment upon some of Smith's theories, and no attempt is made to reduce them to systematic order. He starts by laying down propositions, the proof of which comes afterwards, and is then rather intimated than expressly given. He adopts the terminology which Smith had accepted from popular use,[295] and often applies it in a special significance, which is at least liable to be misunderstood by his readers, or forgotten by himself. It is difficult, again, to feel sure whether some of his statements are to be taken as positive assertions of fact, or merely as convenient assumptions for the purposes of his argument. Ricardo himself, as appears in his letters, was painfully aware of his own awkwardness of expression, and upon that point alone all his critics seem to be in tolerable agreement. Happily, it will be enough for my purpose if I can lay down his essential premises without following him to the remoter deductions.
Ricardo's pamphlet upon Malthus (1815) gives a starting-point. Ricardo cordially adopts Malthus's theory of rent, but declares that it is fatal to some of Malthus's conclusions. Malthus, we have seen, wished to regard rent as in some sense a gift of Providence—a positive blessing due to the fertility of the soil. Ricardo maintains, on the contrary, that 'the interest of the landlord is necessarily opposed to the interest of every other class in the community.'[296] The landlord is prosperous when corn is scarce and dear; all other persons when it is plentiful and cheap. This follows upon Malthus's own showing. As men are forced to have recourse to inferior soils, the landlord obtains a larger share of the whole produce; and, moreover, since corn also becomes more valuable, will have a larger share of a more valuable product. The question apparently in dispute—whether we should be glad that some land is better than the worst, or sorry because all is not equal to the best—seems rather idle. The real question, however, is whether rent, being a blessing, should be kept up by protection,[297] or, being a curse, should be brought down by competition? What is the real working of the system? Set the trade free, says Ricardo, and the capital will be withdrawn from the poor land and employed upon manufactures, to be exchanged for the corn of other countries.[298] The change must correspond to a more advantageous distribution of capital, or it would not be adopted. The principle involved in this last proposition is, he adds, one of the 'best established in the science of political economy, and by no one is more readily admitted than by Mr. Malthus.' To enforce protection would be, on Malthus's illustration, to compel us to use the 'worst machines, when, at a less expense, we could hire the very best from our neighbours.'[299] Briefly, then, the landlord's interest is opposed to the national interest, because it enforces a worse distribution of capital. He compels us to get corn from his worst land, instead of getting it indirectly, but in greater quantity, from our spinning-jennies.
For Ricardo, as for Malthus, the ultimate driving force is the pressure of population. The mass of mankind is always struggling to obtain food, and is able to multiply so rapidly as to exhaust any conceivable increase of supplies. The landlord class alone profits. The greater the struggle for supply the greater will be the share of the whole produce which must be surrendered to it. Beyond this, however, lies the further problem which specially occupied Ricardo. How will the resulting strain affect the relations of the two remaining classes, the labourers and the capitalists? The ultimate evil of protection is the bad distribution of capital. But capital always acts by employing labour. The farmer's capital does not act by itself, but by enabling his men to work. Hence, to understand the working of the industrial machinery, we have to settle the relation of wages and profits. Ricardo states this emphatically in his preface. Rent, profit, and wages, he says, represent the three parts into which the whole produce of the earth is divided. 'To determine the laws which regulate this distribution is the principal problem in political economy'; and one, he adds, which has been left in obscurity by previous writers.[300] His investigations are especially directed by the purpose thus defined. He was the first writer who fairly brought under distinct consideration what he held, with reason, to be the most important branch of economical inquiry.
There was clearly a gap in the economic doctrine represented by the Wealth of Nations. Adam Smith was primarily concerned with the theory of the 'market.' He assumes the existence of the social arrangement which is indicated by that phrase. The market implies a constitution of industrial agencies such that, within it, only one price is possible for a given commodity, or, rather, such that a difference of price cannot be permanent. According to the accepted illustration, the sea is not absolutely level, but it is always tending to a level.[301] A permanent elevation at one point is impossible. The agency by which this levelling or equilibrating process is carried out is competition, involving what Smith called the 'higgling of the market.' The momentary fluctuation, again, supposes the action of 'supply and demand,' which, as they vary, raise and depress prices. To illustrate the working of this machinery, to show how previous writers had been content to notice a particular change without following out the collateral results, and had thus been led into fallacies such as that of the 'mercantile system,' was Smith's primary task.
Beyond or beneath these questions lie difficulties, which Smith, though not blind to their existence, treated in a vacillating and inconsistent fashion. Variations of supply and demand cause fluctuations in the price; but what finally determines the point to which the fluctuating prices must gravitate? We follow the process by which one wave propagates another; but there is still the question, What ultimately fixes the normal level? Upon this point Ricardo could find no definite statement in his teacher. 'Supply and demand' was a sacred phrase which would always give a verbal answer, or indicate the immediate cause of variations on the surface. Beneath the surface there must be certain forces at work which settle why a quarter of corn 'gravitates' to a certain price; why the landlord can get just so many quarters of corn for the use of his fields; and why the produce, which is due jointly to the labourer and the farmer, is divided in a certain fixed proportion. To settle such points it is necessary to answer the problem of distribution, for the play of the industrial forces is directed by the constitution of the classes which co-operate in the result. Ricardo saw in Malthus's doctrines of rent and of population a new mode of approaching the problem. What was wanted, in the first place, was to systematise the logic adopted by his predecessors. Rent, it was clear, could not be both a cause and an effect of price, though at different points of his treatise Smith had apparently accepted each view of the relation. We must first settle which is cause and which effect; and then bring our whole system into the corresponding order. For the facts, Ricardo is content to trust mainly to others. The true title of his work should be that which his commentator, De Quincey, afterwards adopted, the Logic of Political Economy. This aim gives a partial explanation of the characteristic for which Ricardo is most generally criticised. He is accused of being abstract in the sense of neglecting facts. He does not deny the charge. 'If I am too theoretical (which I really believe to be the case) you,' he says to Malthus, 'I think, are too practical.'[302] If Malthus is more guided than Ricardo by a reference to facts, he has of course an advantage. But so far as Malthus or Adam Smith theorised—and, of course, their statement of facts involved a theory—they were at least bound to be consistent. It is one thing to recognise the existence of facts which your theory will not explain, and to admit that it therefore requires modification. It is quite another thing to explain each set of facts in turn by theories which contradict each other. That is not to be historical but to be muddleheaded. Malthus and Smith, as it seemed to Ricardo, had occasionally given explanations which, when set side by side, destroyed each other. He was therefore clearly justified in the attempt to exhibit these logical inconsistencies and to supply a theory which should be in harmony with itself. He was so far neither more nor less 'theoretical' than his predecessors, but simply more impressed by the necessity of having at least a consistent theory.
There was never a time at which logic in such matters was more wanted, or its importance more completely disregarded. Rash and ignorant theorists were plunging into intricate problems and propounding abstract solutions. The enormous taxation made necessary by the war suggested at every point questions as to the true incidence of the taxes. Who really gained or suffered by the protection of corn? Were the landlords, the farmers, or the labourers directly interested? Could they shift the burthen upon other shoulders or not? What, again, it was of the highest importance to know, was the true 'incidence' of tithes, of a land-tax, of the poor-laws, of an income-tax, and of all the multitudinous indirect taxes from which the national income was derived? The most varying views were held and eagerly defended. Who really paid? That question interested everybody, and occupies a large part of Ricardo's book. The popular answers involved innumerable inconsistencies, and were supported by arguments which only required to be confronted in order to be confuted. Ricardo's aim was to substitute a clear and consistent theory for this tangle of perplexed sophistry. In that sense his aim was in the highest degree 'practical,' although he left to others the detailed application of his doctrines to the actual facts of the day.
II. THE DISTRIBUTION PROBLEM
The rent doctrine gives one essential datum. A clear comprehension of rent is, as he was persuaded, 'of the utmost importance to political economy.'[303] The importance is that it enables him to separate one of the primary sources of revenue from the others. It is as though, in the familiar illustration, we were considering the conditions of equilibrium of a fluid; and we now see that one part may be considered as a mere overflow, resulting from (not determining) the other conditions. The primary assumption in the case of the market is the level of price. When we clearly distinguish rent on one side from profits and wages on the other, we see that we may also assume a level of profits. There cannot, as Ricardo constantly says, 'be two rates of profit,' that is, at the same time and in the same country. But so long as rent was lumped with other sources of revenue it was impossible to see, what Malthus and West had now made clear, that in agriculture, as in manufactures, the profits of the producer must conform to the principle. Given their theory, it follows that the power of land to yield a great revenue does not imply a varying rate of profit or a special bounty of nature bestowed upon agriculture. It means simply that, since the corn from the good and bad land sells at the same price, there is a surplus on the good. But as that surplus constitutes rent, the farmer's rate of profit will still be uniform. Thus we have got rid of one complication, and we are left with a comparatively simple issue. We have to consider the problem, What determines the distribution as between the capitalist and the labourer? That is the vital question for Ricardo.
Ricardo's theory, in the first place, is a modification of Adam Smith's. He accepts Smith's statement that wages are determined by the 'supply and demand of labourers,' and by the 'price of commodities on which their wages are expended.'[304] The appeal to 'supply and demand' implies that the rate of wages depends upon unchangeable economic conditions. He endorses[305] Malthus's statement about the absurdity of considering 'wages' as something which may be fixed by his Majesty's 'Justices of the Peace,' and infers with Malthus that wages should be left to find their 'natural level.' But what precisely is this 'natural level?' If the Justice of the Peace cannot fix the rate of wages, what does fix them? Supply and demand? What, then, is precisely meant in this case by the supply and demand? The 'supply' of labour, we may suppose, is fixed by the actual labouring population at a given time. The 'demand,' again, is in some way clearly related to 'capital.' As Smith again had said,[306] the demand for labour increases with the 'increase of revenue and "stock," and cannot possibly increase without it.' Ricardo agrees that 'population regulates itself by the funds which are to employ it, and therefore always increases or diminishes with the increase or diminution of capital.'[307] It was indeed a commonplace that the increase of capital was necessary to an increase of population, as it is obvious enough that population must be limited by the means of subsistence accumulated. Smith, for example, goes on to insist upon this in one of the passages which partly anticipates Malthus.[308] But this does not enable us to separate profit from wages, or solve Ricardo's problem. When we speak of supply and demand as determining the price of a commodity, we generally have in mind two distinct though related processes. One set of people is growing corn, and another working coal mines. Each industry, therefore, has a separate existence, though each may be partly dependent upon the other. But this is not true of labour and capital. They are not products of different countries or processes. They are inseparable constituents of a single process. Labour cannot be maintained without capital, nor can capital produce without labour. Capital, according to Ricardo's definition, is the 'part of the wealth of a country which is employed in production, and consists of food, clothing, raw materials, machinery, etc., necessary to give effect to labour.'[309] That part, then, of capital which is applied to the support of the labourer—his food, clothing, and so forth—is identical with wages. To say that, if it increases, his wages increase is to be simply tautologous. If, on the other hand, we include the machinery and raw materials, it becomes difficult to say in what sense 'capital' can be taken as a demand for labour. Ricardo tells Malthus that an accumulation of profit does not, as Malthus had said, necessarily raise wages[310]; and he ultimately decided, much to the scandal of his disciple, M'Culloch, that an increase of 'fixed capital' or machinery might be actually prejudicial, under certain circumstances, to the labourer. The belief of the labouring class that machinery often injures them is not, he expressly says, 'founded on prejudice and error, but is conformable to the correct principles of political economy.'[311] The word 'capital,' indeed, was used with a vagueness which covered some of the most besetting fallacies of the whole doctrine. Ricardo himself sometimes speaks as though he had in mind merely the supply of labourers' necessaries, though he regularly uses it in a wider sense. The generalities, therefore, about supply and demand, take us little further.