The case you put to me appears to me to be an impossible one. How can
all countries produce their commodities with the same quantity of
labour, all, except one, produce their _corn_ with the same quantity of
labour also, and yet all, the one not excepted, have their profits on
capital at the same rate? The one which you suppose to raise its corn
with only half the quantity of labour required in the others would in
all probability obtain its labour at a much cheaper price, and
consequently profits would be higher in that country. If indeed a free
trade should be established between all these countries, then their
profits might be all nearly at the same rate, because the price of corn
and necessaries estimated in quantity of labour would be nearly the same
in all. In carrying on this supposed case we must be informed whether
the country in which corn is obtained with comparatively little labour
can continue to obtain it on the same terms, after she is called upon to
supply the markets of other countries; if she can, then the comparative
prices of corn and commodities will be altered in all countries; in the
country producing the cheap corn, money will be rather at a higher level
than before, and therefore corn rather dearer; but commodities generally
will be at no higher price;--they will be indeed rather cheaper, because
they will be imported from abroad and from countries where the level of
currency will be somewhat reduced; and therefore the cost price of
commodities in those countries will be lower, and consequently they can
be sold cheaper to the country importing them. Bulky commodities and the
price of labour will only be raised in this particular country, because
the level of currency will be somewhat raised; labour will in the real
measure of value be rather lowered, that is to say, the portion of
produce paid to the labourer, manufactured and raw produce, together,
will probably be rather increased, but in consequence of free trade and
a better distribution of capital, the proportion of the whole produce of
a given capital which the labourer will receive, will be diminished; his
proportion will really be obtained with less labour.
The benefit to other countries cannot be doubted; corn and labour will
fall very greatly in those countries, and consequently profits will
rise, and, as part of their exports in return for corn must in the first
instance be money, the general level of currency will be reduced and
commodities generally will fall, not because they can be produced
cheaper but because they are measured by a more valuable money. This is
on the supposition that corn can continue to be produced with little
labour in the excepted country; but suppose the increased demand for
corn should oblige this country to cultivate poorer land, then the price
of corn would rise from another cause besides the higher level of
currency; and, if this difficulty should be nearly as great as in other
countries, corn would be nearly as high; but, while it could afford on
any terms to export corn for commodities, there would be previously to
the importation of commodities an influx of the precious metals and a
higher level of currency. Without such higher level of currency
commodities could never be imported from countries where they were
before at the same price, and where they required the same quantity of
labour to produce them. Your case is an impossible one, first because
you suppose the profits in two countries to be the same although the
cost of producing necessaries in one of them be only one half of what it
is in the other, secondly you assume as a matter of course that with a
free trade the price of corn in the exporting country would rise to the
price of corn in the importing country whereas it would fall in the
importing country to the price in the exporting country if its cost of
production was not increased in that country, and if it rose it would
rise only in proportion to the increased cost of production. When there
is a free trade between countries it is impossible that profits can
differ very much, the only cause of difference in such case will be the
different modes of living of the labourers; in one country they may be
contented with potatoes and a mud hovel; in another they may require a
decent house and wheaten bread. You say: 'Proceeding from this point it
is obvious that in the course of a hundred years (if accumulation were
supposed) labour and corn might continue at nearly the same price, while
domestic commodities from the fall of profits to the level of other
countries would fall to half their price estimated in the money of the
commercial world.' Domestic commodities are to fall, because profits
fall. If profits fall, _I_ do not see why domestic commodities should
fall; but why should profits fall if corn and labour continued at nearly
the same price? I know of no cause of the fall of profits but the
fall[248] of labour. You say: 'A striking approximation to this case
actually exists in America.' 'The only difference,' you continue, 'is
that circumstances in America have made labour high'; but this is the
only important feature in the case. I am however decidedly of opinion
that, if in America labour was very low and profits consequently much
higher than they are, there would be very little fall in the domestic
commodities of America.
I agree indeed with you that in the progress of the cultivation of
America her corn must rise with the increased difficulty of producing
it; this circumstance must have a tendency to reduce the relative
quantity, or rather lower the level of American currency, which will not
fail by increasing the value of money to lower the value of those
commodities in America which are too bulky to be exported[249]. The
commodities which America exports will not be similarly affected.
Nothing is to me so little important as the fall and rise of commodities
in money; the great enquiries on which to fix our attention are the rise
or fall of corn, labour, and commodities, in real value, that is to say
the increase or diminution of the quantity of labour necessary to raise
corn and to manufacture commodities. It may be curious to develop the
effect of an alteration of real value on money price; but mankind are
only really interested in making labour productive, in the enjoyment of
abundance, and in a good distribution of the produce obtained by capital
and industry. I cannot help thinking that in your speculations you
suppose these much too closely connected with money price.
I have read a very good critique on Godwin in the Edinburgh Review[250];
and I am quite sure that I know the writer. It is very well done and
most satisfactorily exposes Godwin's ignorance as well as his
disingenuousness.
Ever yours,
DAVID RICARDO.
[Postscript.] I cannot agree with you that in the progress of the
cultivation of America a mean between her corn and labour will remain
nearly at the same price as it now is, estimated in money or in
hogsheads of claret; it will in my opinion rise. Let me take your own
supposition. A country produces her corn with half the labour of another
country; consequently she employs only half the capital in producing a
given quantity[251]. In this country corn will be at only half the price
at which it is in another; 100 quarters will sell for L200, while in
another it sells for L400. Suppose profits in both countries to be 20
per cent.; in one a capital of L166 will be employed in the raising of
100 quarters of corn, in the other L333 will be so employed, and 20 per
cent. on each of these capitals will be on one L33, and on the other
L66. To get L33 the one must have 16-1/2 quarters for his share of the
100 quarters, the other must have precisely the same quantity, and
consequently 83-1/2 quarters are paid in both cases for wages and other
charges. But the farmer in the fertile country employs only half the
labour that the other employs, and consequently with the same money
wages each labourer will have the command of double the quantity of
corn, he will have what you call double real wages.
Now suppose that in the progress of the fertile country it [will] at
last arrive at the state in which it is necessary to [emplo]y L333
instead of L166 to raise 100 quarters of corn; it is indeed possible,
under the extravagant supposition with which we have commenced, that
labour might continue at the same money price; but it is quite
impossible that corn should not be doubled in money price, for twice the
quantity of labourers at these uniform money wages would be required to
produce it. If corn doubles in price and wages remain stationary, the
mean between the two must necessarily rise, and consequently, estimated
in claret or in money, a mean between her corn and labour cannot as you
say remain nearly the same. If (as I had a right to suppose) labour in
such a country was at a low money price, when corn could be produced
with so much facility, the conclusion, when corn rose, would be much
more in my favour.
I cannot allow that hats would fall in a progressive country because of
a fall of profits. How can it be said that the cost of producing hats is
reduced by a fall of profits, if a fall of profits must be accompanied
by a rise of wages? Show me that a fall of profits may take place
without a rise of wages in any fixed measure of value, and then I will
yield this point. But _you_ have no right to talk of a fall of profits;
your case is that of a progressive country with low profits and enormous
wages. If of every 100 quarters of corn, where it can be produced with
little labour, eighty-three be given to the labourers, while no more is
given in countries where double the quantity of labourers are employed
to produce 100 quarters of corn, _you_ are bound to say that wages are
enormously high. In my measure of value they would not be enormously
high: but the commodity on which wages were expended would be
extravagantly low; at any rate we should both agree that profits in such
a state of things would be very moderate.
It is hardly fair to tax you with so long a letter and so soon too!