Reading David Ricardo’s Letters

Branko Milanovic - by way of Ricardo's letters - reminds us of the limits of our knowledge and economics.

While redrafting the chapter on Ricardo in my forthcoming book “Through the Lens of Inequality”, I reread, and also read many for the first time, his letters published in the excellently edited (by Piero Sraffa and Maurice Dobb) and handsomely printed and bound volumes of Ricardo’s collected writings. Ricardo’s letters take four volumes and run from 1810 to 1823, the year of his death. The Sraffa and Dobb edition includes both letters written by Ricardo and those sent to him, with very useful notation as to which letter replies to which so that the correspondence can be easily followed. The letters are not corrected for orthographic or spelling errors.

The letters exchanged between Ricardo and Malthus have been often cited, but less so those between him and James Mill, John Ramsey McCulloch and Hutches Trower. The latter are perhaps the most interesting and they were published in a separate volume that contains only Ricardo’s letters. Trower was Ricardo’s friend from business, from the stock market, where Ricardo made his enormous fortune before deciding to dedicate more time to other activities, including political economy and politics (he became Member of Parliament, by buying the seat in 1818 and remained in the Parliament until his death).

The letters only sporadically deal with mundane personal matters; practically all are discussions of economic and political issues. A lot of space is taken by the discussion of the theory of value or by the search for a commodity unchangeable in value such that all other prices could be reflected in it. Ricardo correctly criticizes Malthus who decided that such a standard of value should be the average of wage level and price of corn. We know that this search for an unchangeable standard of value ultimately led to Sraffa’s “standard commodity”. Some of Ricardo’s letters that deal with it are very hard to read, and make Principles which too are in parts excessively abstract and dry seem easy by comparison.

But there are also some lighter parts: “our Princes have certainly not refrained from marriage from the consideration of Malthus’ prudential check, and from a fear of producing redundant royal population. If they had they would be now actuated by different motives and we might expect that the great demand for royal infants be followed by so ample supply as to occasion a glut” (Letter to Trower, 10 December 1817). 

I find very interesting Ricardo’s discussion of the Poor Laws. As is well-known, Ricardo was in favor of abolishing Poor Laws on the grounds that, by entitling poor people to an open-ended assistance, they promoted idleness and,  here partly agreeing with Malthus, improvident behavior by the lower classes who might marry earlier and have more children than otherwise. There is still a perceptible difference in tone between Malthus and Ricardo even if both were against the Poor Laws. While Ricardo expresses sympathy for the poor and, to some extent, believes that they may be, in the longer-term, better off without the Poor Laws, Malthus shows an almost undisguised disdain, and perhaps even hatred, for the lower classes.

I think that one could make a case that Ricardo’s rejection of Poor Laws and his championing of capitalists (as against the landlords) have the same origin: Ricardo’s view of political economy as preeminently concerned with economic growth. It is, at first, strange to think that the person who famously wrote on the first page of the Principles that the most important problem in political economy is one of distribution should be a champion of economic growth above all. But, as I write in my chapter, this is not surprising if one realizes that for Ricardo change in distribution, that is lower income for landowners and higher income for capitalists, was precisely the indispensable condition for economic growth. It is only capitalists who are regarded as active agents of change and economic growth—since all investments come from profits.

Similarly, I think, one could argue that high spending on the poor (what we would call today high expenditures on social programs) would ultimately detract from profits and hamper economic growth. One can easily recognize in these views today’s standard right-wing policy position, but I think that in Ricardo, who obviously had many left-wing continuators, from Marx to Ricardian socialists to Sraffa’s neo-Ricardians, the pro-capitalist position was not motivated by class interest, but by the single-minded focus on economic growth.

In fact, when in a latter to Trower, Ricardo describes his 1822 European continental tour and his dinner with Sismondi, the famous underconsumptionist, this pro-growth concern readily comes through. Ricardo writes:

M. Sismondi who has published a work on political economy, and whose views are quite opposed to mine, was on a visit at the Duke's [de Broglie] house… Notwithstanding my differences with M. Sismondi on the doctrines of political economy, I'm a great admirer of his talents, and I was very favorably impressed by his manners. I did not expect from what I've seen of his controversial writings to find himself so candid and agreeable. M. Sismondi takes enlarged views, and  is sincerely desirous of establishing principles which he conceives to be most conducive to the happiness of mankind. He holds that the great cause of the misery of the bulk of the people in all countries is the unequal distribution of property, which tends to brutalize and degrade the lower classes. The way to elevate men, to prevent him from making inconsiderate marriages, is to give him property and an interest in the general welfare—thus far we should pretty well agree, but when he contends that theabundance of  production caused by machinery, and by other means, is the cause of the unequal distribution of property, and that the end he has in view cannot be accomplished while this abundant production continues, he, I think, entirely misconceives the subject. and does not succeed in showing the connection of his premises with his conclusions. (Letter to Trower, 14 December 1822, pp. 195-96).

I would like to finish with two remarks made in passing by Ricardo which, when “unpacked” are pregnant of deep meaning and have a thoroughly contemporary ring to them. The first is made in connection to James Mill’s “History of India” that Mill was in the process of writing during the period of correspondence. (By the way, James Mill who was the same age as Ricardo appears in the letters as a benevolent elder on whose unerring advice Ricardo much depends). There, Ricardo reflects on our inability of ever fully comprehending other cultures, not because they are irrational and not because we are not smart enough, but because our worldview is fashioned by our experience which may be entirely different from that of people from other cultures.

However well we may have examined the end to which all our laws should tend, yet when they are to influence the actions of a different people we have to acquire a thorough knowledge of the peculiar habits, prejudices and objects of desire of such people, which is itself an almost unattainable knowledge, for I am persuaded that from our own peculiar habits and prejudices we should frequently see these things through a false medium, and our judgment would err accordingly. (Ricardo to James Mill, 9 Nov 1817. p. 204.)

This penetrating observation should give us pause, I think, when we too readily pronounce on matters we do not know sufficiently or on cultures with which we are only superficially acquainted. (One can, of course, imagine that the observation was influenced also by Ricardo’s own past, rejection of Judaism, and conflict with his parents.)

The second note is on the role of political economy. Ricardo writes:

Political economy would teach us to guard ourselves from every other revulsion, but that which arises from the rise and fall of states—from the progress of improvement in other countries than our own, and from the caprices of fashion—against these we cannot guard. (Letter to Trower, 3 October 1820.)

There are, he says, three exogeneous changes that even the best economics cannot deal with. The first are exogeneous political changes that affect economic matters. What better example than today’s war in Ukraine—from the point of view of domestic economics, whether in the US, Russia , Ukraine or the European Union—an entirely exogeneous shock with, nevertheless, huge economic repercussions.

The second exogenous shock is the arrival of new technologies. Here, interestingly, Ricardo seems to say that the exogeneity occurs only if the shock is externally-generated, that is, comes from abroad. That could be, for example, the development of synthetic rubber in Germany in the 1910s, or the agricultural revolution in Asia in the 1960s, or the invention of “just-in-time” system in Japan in the 1980s: all were exogenous technological shocks for the American producers. But circumscribing exogeneity of technology only to abroad, Ricardo seems to be saying that domestic technological development is endogenous, that is, is determined by  domestic policy instruments (say, interest rate, exchange rate, subsidies and taxes) and that technology is not a manna from heaven but the outgrowth of economic management. However, since we do not have control over foreign countries’ economic management, technological developments there (which are from their point of view endogenous) appear to us as exogeneous, and hence as something that we cannot control.

The third exogeneous element is “the caprice of fashion” or what in today eco-lingo would be called “change in preferences”. This of course is a very wide field. It could include many things, from ordinary fashions to a change in taste for working long hours and making money. Today’s still marginal but growing “culture of withdrawal” that we observe in Japan and China can be one such change in fashion. There too, Ricardo is right, economics cannot do much. If you want to stimulate growth but people are content with their incomes and just wish to work less, economic policy will, in the end, be powerless to change it.

It is often in these dispersed observations made in his letters that we can better appreciate Ricardo, the man and the fundamental decency and gentleness of his character, and Ricardo, not only as one of the founders of political economy, but a deep thinker about the limits of power of economics and our own knowledge.

This first appeared on Branko's blog and was reposted with permission.

Photo by Daniel Ellis