II: RICARDO
Next to Smith, Ricardo is the greatest name in economics, and fiercer controversy has centred round his name than ever raged around the master’s. Smith founded no school, and his wisdom and moderation saved him from controversy. Hence every economist, whatever his views, is found sitting at his feet straining to catch the divine accents as they fall from his lips.
But Ricardo was no dweller in ethereal regions. He was in the thickest of the fight—the butt of every shaft. In discussions on the question of method the attack is always directed against Ricardo, who is charged with being the first to lead the science into the fruitless paths of abstraction. The Ricardian theory of rent affords a target for every Marxian in his general attack upon private property. The Ricardian theory of value is the starting-point of modern socialism—a kinship that he could never have disavowed, however little to his taste. The same thing is true of controversies concerning banks of issue and international trade: Ricardo’s place was ever with the vanguard.
His defects are as interesting as his merits, and have been equally influential. Of his theories, especially his more characteristic ones, there is now little left, unless we recall what is after all quite as important—the criticisms they aroused and the adverse theories which they begot. The city banker was a very indifferent writer, and his work is adorned with none of those beautiful passages so characteristic of Smith and Stuart Mill. No telling phrase or striking epithet ever meets the eye of the reader. His principal work is devoid of a plan, its chapters being mere fragments placed in juxtaposition. His use of the hypothetical method and the constant appeal to imaginary conditions makes its reading a task of some difficulty. This abstract method has long held dominion over the science, and it is still in full activity among the Mathematical economists. His thoughts are penetrating, but his exposition is frequently obscure, and a remark which he makes somewhere in speaking of other writers, namely, that they seldom know their own strength, may very appropriately be applied to him. But obscurity of style has not clouded his fame. Indeed, it has stood him in good stead, as it did Marx at a later date. We hardly like to say that a great writer is unintelligible—a feeling prompted partly by respect and partly arising out of fear lest the lack of intelligence should really be on our side. The result is an attempt to discover a profound meaning in the most abstruse passage—an attempt that is seldom fruitful, especially in the case of Ricardo.
It is clearly impossible to outline the whole of this monumental work. We shall content ourselves with an attempt to place the leading conceptions clearly before our readers.[313]
Speaking generally, Ricardo’s chief concern is with the distribution of wealth. He was thus instrumental in opening up a new field of economic inquiry, for his predecessors had been largely engrossed with production. “To determine the laws which regulate this distribution is the principal problem in political economy.” We have already some acquaintance with the tripartite division of revenues corresponding with the threefold division of the factors of production—the rent of land, the profits of capital, and the wages of labour. Ricardo wanted to determine the way in which this division took place and what laws regulated the proportion which each claimant got. Although unhampered by any preconceptions concerning the justice or injustice of distribution, we can easily understand how he ushered in the era of polemics and of socialistic discussion, seeing that the natural laws pale into insignificance when contrasted with the influence wielded by human institutions and written laws. The latter override the former, and individual interests which may co-operate in production frequently prove antagonistic in distribution.
We shall follow him in his exposition of the laws of rent, wages, and profits, but especially rent, for according to him the share given to land determines the proportions which the other factors are going to receive.
One would imagine that an indispensable preliminary to this study would be an examination of the Ricardian theory of value, especially when we recall the importance of his theory of labour-value in the history of economics doctrine and how it prepared the way for the Marxian theory of surplus value, which is the foundation-stone of contemporary socialism. Despite all this we shall only refer to his theory of value incidentally, and chiefly in connection with the laws of distribution. We have Ricardo’s own authority for doing this: “After all, the great problem of rent, of wages, or of profits might be elucidated by determining the proportions in which the total product is distributed between the proprietors, the capitalists, and the workers, but this is not necessarily connected with the doctrine of value.”[314]
It is, moreover, probable that Ricardo himself did not begin with an elaborate theory of value from which he deduced the laws of distribution, but after having discovered, or having convinced himself that he had discovered, the laws of distribution he attempted to deduce from them a theory of value. One idea had haunted him his whole life long, namely, that with the progress of time nature demanded an ever-increasing application of human toil. No doubt it was this that suggested to him that labour was the foundation, the cause, and the measure of value. But he never came to a final decision on the question, and his statements concerning it are frequently contradictory. We must also confess that his theory of value is far from being his most characteristic work. In the elucidation of that difficult question, vigorous thinker though he was, he has not been much more fortunate than his predecessors. He himself acknowledged this on more than one occasion, and shortly before his death, with a candour that does him honour, he recognised his failure to explain value.[315]
1. The Law of Rent
Of all Ricardian theories that of rent is the most celebrated, and it is also the one most inseparably connected with Ricardo’s name. So well known is it that Stuart Mill spoke of it as the economic pons asinorum, and it has always been one of the favourite subjects of examiners.
The question of rent—that is, of the return which land yields—had occupied the attention of others besides Ricardo. It was the burning question of the day. The problem of rent dominated English political economy during the first half of the nineteenth century, and a later period has witnessed a revival of it in the land nationalisation policy of Henry George. In France there was but a feeble echo of the controversy, for France even long before the Revolution had been a country of small proprietors. Landlordism was far less common there, and where it existed its characteristics were very different. That threefold hierarchy which consisted of a worker toiling for a daily wage in the employ of a capitalist farmer who draws his profits towered over by a landlord in receipt of rents formed a kind of microcosmic picture of the universal process of distribution, but it was seldom as clearly seen in France as it was in England.
The first two incomes presented no difficulties. But how are we to explain that other income—that revenue which had created English aristocracy and made English history? The Physiocrats had named it the “net product,” and they argued a liberality of nature and a gift of God. Adam Smith, although withholding the title of creator from nature and bestowing it upon labour, nevertheless admits that a notable portion—perhaps as much as a third of the revenue of land—is due to the collaboration of nature.[316]
Malthus had already produced a book on the subject,[317] and Ricardo hails him as the discoverer of the true doctrine of rent. Malthus takes as his starting-point the explanation offered by the Physiocrats and Adam Smith, namely, that rent is the natural outcome of some special feature possessed by the earth and given it by God—that is, the power of enabling more people to live on it than are required to till it. Rent is the result, not of a merely physical law, but also of an economic one, for nature seems to have a unique power of creating a demand for its products, and consequently of maintaining and even of increasing indefinitely both its own revenue and value. The reason for this is that the population always tends to equal and sometimes to surpass the means of subsistence. In other words, the number of people born is seldom less than the maximum number that the earth can feed. This new theory of rent is a simple deduction from Malthus’s