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SHE Document Seven

WEALTH AND POVERTY: MALTHUS AND RICARDO


Malthus and Ricardo, whose economics helped to provide the theoretical framework for the New Poor Law of 1834.

Malthus and Ricardo

According to Rousseau the reformation of society depends on its citizens recovering their concern for the general interest. When selfish "particular" interests override the general interest society is corrupted, and its members are not truly free. Adam Smith, on the other hand, argued that, by a strange irony of nature, it is selfishness that most promotes the general good!

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love " (Adam Smith 1776 par.1.2.1)

After the French Revolution, Smith's pioneering work was developed into a science (political economy) that was to lay the foundations not only for modern economics, but also for marxism. David Ricardo and Thomas Malthus were the two leading theorists of this political economy.

Malthus was Professor of Political Economy (the first) at the East India College, Hailbury from 1805. Before that he was a Church of England curate, which is why he was known as "Parson Malthus".

His three main publications were:

It was the essay on population that made him famous.

The father of Thomas Malthus had been a friend of Rousseau and was a disciple of William Godwin (the husband of Mary Wollstonecraft). He loved an argument and he often chose to argue with his son. It was out of one of these arguments that Thomas developed his theory of population. According to Thomas, we can never reach a condition of well-being, with plenty for all, because our numbers will always tend to increase more rapidly than our means of subsistence.

In the Essay, Malthus gave his theory a mathematical form:

"Population, when unchecked, increases in a geometrical ratio... The means of subsistence could not possibly be made to increase faster than in an arithmetical ratio".

It was a gloomy essay. When Thomas Carlyle read it he called economics the "dismal science". But it was very popular because it appeared at the height of anti French feeling in Britain. People who could afford to buy books were pleased to find scientific reasons why the French ideas about reorganizing society to make it rational, would not work.

The census returns of 1801, showed a rapid increase of population, and, at the same time England was becoming a net importer of corn instead of a net exporter. It looked as if the population of England was outgrowing its resources.

The historian Halevy points to two other reasons for the success of Malthus's work.

  1. It fitted in well with English economics

  2. It provided a solution to anxieties about the poor law.

Economics

"The real price of everything, what everything realy costs to the man who wants to acquire it, is the toil and trouble of acquiring it." (Adam Smith 1776 par.1.5.2)

British economists, following Adam Smith, regarded labour as the only source of wealth and standard of value. But, if wealth is purchased by labour (rather than being the bounty of nature for example) it means every pleasure costs an equivalent pain. This, in turn, implies a scarcity of resources. And from there it is only a short step to Malthus's view that we are not born to plenty, but to a world in which population will always press hard on nature's resources.

Malthus seemed to explain why some of the axioms of English economics were true.

The Poor Law

During the wars with France (1793-1815) there was a lot of anxious discussion in England about the Poor Law. The general object of the law was to obtain from the paupers relieved by the public a due return of labour. But during a period of grave distress the rulers of England felt obliged to permit serious relaxations of this principle. Halevy says that, at the time Malthus published his book on population: "the guardians were distributing relief with a reckless extravagance". This upset the political economists. A host of writers, in conformity with the principles of Adam Smith, argued that poor relief as it was administered in England, was opposed to the laws of nature, put a premium on idleness and incompetence, and encouraged the population to outgrow the means of subsistence.

Malthus's book was a particularly well argued one. It gave the economists new and striking arguments to denounce the waste and pass wholesale condemnation on the system of poor relief.

David Ricardo (1772-1823)

Ricardo was the son of a London stockbroker who himself made a fortune on the stock market. He first became interested in political economy in 1799 when he read Adam Smith's The Wealth of Nations. In 1809 Ricardo published a pamphlet arguing that paper currency should be backed up by precious metals. This was called The High Price of Bullion, A Proof of the Depreciation of Banknotes and it attracted the attention of James Mill. Mill encouraged him to write more and in 1817 he published his Principles of Political Economy and Taxation. In 1819 Ricardo became the Radical MP for Portarlington and in the House of Commons he was a leading opponent of the Corn Laws and a proponent of free trade.

According to Halevy, Ricardo became the leading light of English economics only after the question of rent attracted public attention, and after Malthus had distinguished himself by developing a principle of rent, in addition to his principle of population.

Malthus on Rent

At the East India College Malthus developed a theory of rent which he regarded as the direct consequence of his principle of population. If population tends to increase more rapidly than subsistence, Malthus argued, people will continually have to bring under cultivation soils of an inferior quality. The labour needed to produce food would go up and so would the price of food.

Imagine this happening. The price of food generally goes up because the cost of producing it at the margin of profitable production has increased. The people who are farming the least profitable land get just enough in terms of wages and profits to make it worth their while. But what about the people farming the more fertile land? The price they get for their produce has increased, but their costs have not. So perhaps they are rolling in money? Oh no, says Malthus. Because of competition wages and profits tend to be equal on different soils. A landlord whose tenant farmer is making a big profit will increase the rent - and if the farmer will not pay there will be a farmer from the poorer soil to take his place, because, on more fertile land, this farmer will be able to reduce his labour costs to pay the extra rent. So, there is a surplus from the more fertile areas, but it all goes to the landlord as increased rent, not to the farm labourers (wages) or to the farmers (profits).

Bread

The ordinary people in eighteenth and early nineteenth century England lived mainly on bread. Their welfare, therefore, was very dependent on the price of corn. During the wars with France the price of corn went up and the main result was that the landlords made a big profit. It was possible to argue, therefore, that it was landlords pushing up rents that was pushing up the price of bread and making the workers hungry. Malthus's argument, published in 1815, meant that the increase in rents was an effect, not a cause, of the increase in the cost of living. So it let the landlords of the hook!

The restoration of peace in 1815 was followed by an agricultural crisis. A parliamentary commission was appointed to investigate its causes. Several of the witnesses put forward theories similar to the one Malthus was working on and this spurred Malthus to publish his book on rent. The Government decided that English argriculture should be protected by Corn Laws. These meant that foreign corn paid a heavy duty before it came into the country and so the price of bread, and English landlords rents, were both kept high. The Corn Laws were not repealled until 1846.

In "On the Influence of a Low Price of Corn on the Profits of Stock", Ricardo accepted the two laws Malthus had formulated: his law of population, and his law of rent. Ricardo, however, rejected the protectionist consequences which Malthus deduced from his laws in his essay of 1815. To prove his own doctrine of Free Trade he built upon Malthus's laws his own system. Ricardo's system showed the laws that governed the distribution of wealth between different classes.

Wages. A law of wages is the first consequence Ricardo deduced from the law of population. According to this law, the amount of wages received by the labourer, the natural price of labour, is the amount necessary to enable workers to subsist and to perpetuate the species "without increase or diminution". Wages cannot decrease without starving the labourer On the other hand, they cannot increase without increasing the population which will re-establish the equilibrium with the means of subsistence.

Profits The law of wages means that the amount of wages calculated in terms of foodstuffs remains fixed. Money wages, however, must constantly increase. This is because the average labour cost of producing enough to feed one worker increases with the growth of population, because it requires the cultivation of inferior soils.

But this increase in money wages will not be paid out of the landlord's rent: which is a fixed figure. It must, therefore, be paid out of the farmers profits. Profits get squeezed between wages and rent. In this way Ricardo deduced that profits will progressively decrease until we got a stagnant society where it is not worth risking capital to expand production because the rate of profit is to low.

Rents So, according to Ricardo, with the natural progress of society the workers remain at an equal level of bare subsistence, and the capitalist receives a constantly decreasing income. The landowner alone grows continually more wealthy, and this increase of wealth represents neither labour nor risk.

This was the outline of the system which Ricardo set himself to develop in detail in 1815. In 1817 he published the fruit of his two years' labour, his Principles of Political Economy and Taxation. Thus, according to Halevy, the theories of Malthus were incorporated by Ricardo into the classical tradition of political economy. At the same time, he says, Ricardo's teaching was being incorporated into an entire system of philosophy: Bentham's utilitarinism



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Headings

Malthus and Ricardo

Economics

The Poor Law

David Ricardo

Malthus on Rent

Bread

Wages

Profits

Rents

Other Documents

Social Science and the 1834 Poor Law: The Theories that Smith, Bentham, Malthus and Owen made

Radicals, Socialists and early Feminists

Marx and Engels: Scientific Socialism

Works and Authors

Rousseau

Adam Smith

James Mill on Government

Marx and Engels Communist Manifesto


© Andrew Roberts 1.1989 -


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