I received your letter last Sunday, and in the evening of that day Mrs.
Ricardo and the rest of my family arrived here. I have been showing them
all the beauties of this place, and my time has been pretty well
engrossed by them these three last days.... The fall in Omnium is I
believe to be attributed to our continued expenses, and the expectation
of another loan before the payments on the present are completed. The
present state of the Exchanges seem[s] to indicate a real fall in the
value of foreign currencies; it cannot be attributed to any change of
taste for particular commodities, or any other caprice. I expected that
Peace would lower the value of foreign currency, but I confess not in
the degree which has taken place. It leaves the question between us
undecided--namely, whether the exchange is not operated upon solely by
the relative preponderance of currency. Peace has rendered the currency
of the continent much more efficacious to the business to be done.
With regard to our present question, we differ as to effects which must
_necessarily_ follow from restrictions on the importation of foreign
corn. I do not think that a diminution of capital is a _necessary_, but
a probable effect. We agree as to the consequences which will attend a
diminution of capital, but I should say that a real diminution of
capital will diminish the work to be done, and consequently will affect
the wages of labour, and the demand for food. In the case supposed,
restrictions on importation of corn, encouragement is given to the
further cultivation of our own land,--but _if_ accompanied by a
diminution of capital a discouragement is also given to the cultivation
of the land, and whether profits rise or fall must in my opinion depend
upon the degree of these contra-operating causes. It is true that the
woollen or cotton manufacturer will not be able to work up the same
quantity of goods with the same capital if he is obliged to pay more for
the labour which he employs, but his profits will depend on the price at
which his goods when manufactured will sell. If every person is
determined to live on his revenue or income, without infringing on his
capital, the rise of his goods will not be in the same proportion as the
rise of labour, and consequently his percentage of profit will be
diminished if he values his capital, which he must do, in money at the
increased value to which all goods would rise in consequence of the rise
of the wages of labour. In such case I should say that the effective
demand had diminished, because the same quantity of commodities could
not be annually consumed. If the same quantity of commodities continued
to be consumed, then it must be evident that it would be at the expense
of capital. In such case capital would diminish faster than demand,
which would tend to keep up profits. But how long will [people] continue
to indulge in luxuries at the expense of a continual diminution of
capital? It is the road to ruin, and, though frequently persisted in by
a few individuals, it is not often found to be the folly of nations. On
the contrary, if any causes interrupt the progress of nations, if
restrictions on their trade, or expensive wars, tend to diminish their
capital, at such times more economy is practised, and, as Adam Smith has
observed, the profusion of governments is counteracted by the frugality
of individuals. If so, I cannot be incorrect in saying that, though for
a short period capital and produce may diminish faster than demand,--yet
in the long run effective demand cannot augment or continue stationary
with a diminishing capital. You say, what I did not before understand
you to admit, 'that the whole amount of demand will from advanced prices
diminish of course, but the proportion of demand to supply, which is
always the main point in question, as determining prices and profits,
may continue to increase, _as it does in all countries the capital of
which is retrograde_;' but I do not agree even to this explanation, and
it appears to me to be at variance with an opinion which I have often
heard you express, viz. The temptation to save from revenue to augment
capital is always in proportion to the rate of profits, and, if from
accumulation of capital profits and interest should fall very low
indeed, at that point accumulation would nearly stop, because it would
be almost without an object. In this opinion I most cordially agree, and
I cannot help thinking that it is at variance with the above sentence
which I have quoted from your letter. I maintain, as I think you have
done, that consumption as compared with production is always greatest
where capital is most accumulated. Diminish the capital of England one
half, and you undoubtedly augment profits, but it will not be in
consequence of a greater proportion of demand but of a greater
proportion of production; demand as compared with production could
hardly fail to diminish. Individuals do not estimate their profits by
the material production, but nations invariably do. If we had precisely
the same amount of commodities of all descriptions in the year 1815 that
we now have in 1814, as a nation we should be no richer; but, if money
had sunk in value, they would be represented by a greater quantity of
money, and individuals would be apt to _think_ themselves richer. I
shall be in town either next week or the week after. I wish you would
return here with me. We would discuss these important points in our
shady groves. With kind regards to Mrs. Malthus,
I am, yours truly,
DAVID RICARDO.