Letters of David Ricardo to Thomas Robert Malthus, 1810-1823. David Ricardo
increased value of commodities is always the effect of an increase either in the quantity of the circulating medium or in its power, by the improvements in economy [in] its use [sic][34]—and is never the cause[35]. It is the diminished value, I mean nominal value, of commodities, which is the great cause of the increased production of the mines; but the increased nominal value of commodities can never call money into circulation. It is certainly an effect and not a cause. I am writing in a noisy place; you must therefore excuse all blunders. I must offer the same apology for my two half sheets[36]. I did not like to copy the first half over again.
With best compliments to Mrs. Malthus, I remain,
Yours very sincerely,
David Ricardo.
V.
Stock Exchange, 17 Aug., 1810.
My dear Sir,
… I cannot deny myself the pleasure of accepting your kind invitation for Saturday next. I will be with you at the usual hour.
That we have experienced a great increase of wealth and prosperity since the commencement of the war, I am amongst the foremost to believe; but it is not certain that such increase must have been attended by increased profits, or rather an increased rate of profits, for that is the question between us. I have little doubt however that for a long period, during the interval you mention[37], there has been an increased rate of profits, but it has been accompanied with such decided improvements of agriculture both here and abroad, for the French Revolution was exceedingly favourable to the increased production of food, that it is perfectly reconcileable to my theory. My conclusion is that there has been a rapid increase of capital, which has been prevented from showing itself in a low rate of interest by new facilities in the production of food. I quite agree that an increased value of particular commodities occasioned by demand has a tendency to occasion an increased circulation, but always in consequence of the cheapness of some other commodities. It is therefore their cheapness which is the immediate cause of the introduction of additional money.
I have not been home since I received your letter. I will look at the passage you refer me to in Adam Smith[38], and will consider of the other matters in your letter, so as to be prepared to give you my theory when we meet.
The facts you have extracted from Wetenhall's tables are curious[39], and are hardly reconcileable to any theory. I attribute many of them to the state of confusion into which Europe has been plunged by the extent and nature of the war; and it would be quite impossible to reason correctly from them without calculating what the state was of the real as well as the computed exchange during the periods referred to. Pray make my best respects to Mrs. Malthus, and believe me,
Truly yours,
David Ricardo.
VI.
Dear Sir,
I lose no time in answering your obliging letter and endeavouring as far as lies in my power to remove the very few objections which prevent us from being precisely of the same opinion on the subject of money and the laws which regulate its value in the countries which have constant commercial intercourse with each other. I have no view in this discussion but that which you have avowed, the circulation of truth; if therefore I should fail to convince you, and you should express your opinions in print, it is immaterial to me whether you mention my name or not. I trust you will do that which shall most fully tend to establish the just principles of the science.
There does not appear to me to be any substantial difference between bullion and any other commodity as far as regards the regulation of its value and the laws which determine its exportation or importation. It is true that bullion, besides being a commodity useful in the arts, has been adopted universally as a measure of value and a medium of exchange; but it has not on that account been taken out of the list of commodities. A new use has been found for a particular article; consequently there has been an increased demand for it and an augmented supply. This new use has made every man a dealer in bullion; he buys it to sell it again, and the general competition of all these dealers will as surely, and as strictly, regulate its value in every country, as the competition of the same or other dealers will regulate the value of all other commodities. I have your sanction for calling every purchaser of commodities a dealer in bullion; and, though in the language of commercial men the sellers of money are in all cases called purchasers, it is not on that account less true that they are sellers of one commodity and purchasers of another. The nature of corn was not changed by the discovery that a new use might be made of it by fermentation and distillation; and, if we should hereafter discover that it might be used for a hundred other purposes, contributing to the comforts and enjoyments of mankind, the demand for it would increase, and its price would in the first instance be considerably augmented; but this would be the only change it would undergo; it would continue to be imported and exported by the same rules as every other commodity. I have no doubt that on this point we should not differ; it remains therefore for you to show why the new uses, to which gold has been applied in consequence of its being adopted as the money of the world, should exempt it from the general law of competition, and why it should not certainly and invariably (invariably only as that term is applied to other commodities) seek the most advantageous market.
It is probable that the word 'redundancy' has not been happily chosen by me to express the impression made on my mind of the cause of an unfavourable balance of trade; but on looking over the article in the Review[40] I find that you use it precisely in the sense in which I wish to convey my meaning, for you admit that a relatively redundant currency may be, and frequently is, a cause of an unfavourable balance of trade; but you contend that it is not the only cause. Now I, so understanding the word, contend that it is the invariable cause. This relative redundancy may be produced as well by diminution of goods as by an actual increase of money (or which is the same thing by an increased economy in the use of it) in one country; or by an increased quantity of goods or by a diminished amount of money in another. In either of these cases a redundancy of money is produced as effectually as if the mines had become more productive. I do not deny that temporary fluctuations do occur in the value of the precious metals; on the contrary I maintain that those fluctuations never cease; but I attribute them all to one cause, namely a redundancy of the currency produced in one of the ways above mentioned, and not to the demand for particular commodities. These demands are in my opinion regulated by the relative state of the currency; they are not causes but effects. You appear to me not sufficiently to consider the circumstances [which] induce one country to contract a debt to another. [In] all the cases you bring forward you always suppose the [deb]t already contracted, forgetting that I uniformly contend that it is the relative state of the currency which is the motive to the contract itself. The corn, I say, will not be bought unless money be relatively redundant; you answer me by supposing it already bought and the question to be only concerning the payment. A merchant will not contract a debt for corn to a foreign country unless he is fully convinced that he shall obtain for that corn more money than he contracts to pay for it, and, if the commerce of the two countries were limited to these transactions, it would as satisfactorily prove to me that money was redundant in one country as that corn was redundant in the other. It would prove too that nothing but money was redundant. If indeed sugar were exported by some other merchant, the debt for corn would be paid without the exportation of money, and I should say that sugar was the redundant commodity; and the exportation of sugar, the more redundant commodity, by diminishing the aggregate amount of commodities, would raise the value of money, so that in a short time money would, if corn continued to be imported and sugar exported, no longer be redundant even as compared with corn. Your observation is just, concerning the extra expenses attending the exportation of bulky commodities; but in all these discussions we must suppose these expenses to make part of the price of the commodity; our comparison is made on the prices at which the importer could afford to sell them, and those prices necessarily include expenses