The population is limited,as we see,by the necessity of raising supplies of food from inferior soils.Moreover,this is the sole limit.A different view had been taken which greatly exercised the orthodox economists.It was generally admitted that in the progress of society the rate of profit declined.Adam Smith explained this by arguing that,as capital increased,the competition of capitalists lowered the rate.To this it was replied (as by West)that though competition equalised profits,it could not fix the rate of profit.The simple increase of capital does not prove that it will be less profitably employed.The economists had constantly to argue against the terrible possibility of a general 'glut.'The condition of things at the peace had suggested this alarm.The mischief was ascribed to 'over-production'and not to misdirected production.The best cure for our evils,as some people thought,would be to burn all the goods in stock.
On this version of the argument,it would seem that an increase of wealth might be equivalent to an increase of poverty.To confute the doctrine in this form,it was only necessary to have a more intelligent conception of the true nature of exchange.As James Mill had argued in his pamphlet against Spence,every increase of supply is also an increase of demand.
The more there is to sell,the more there is to buy.The error involved in the theory of a 'glut'is the confusion between a temporary dislocation of the machinery of exchange,which can and will be remedied by a new direction of industry,and the impossible case of an excess of wealth in general.22Malthus never quite cleared his mind of this error,and Ricardo had to argue the point with him.Abundance of capital cannot by itself,he says,'make capital less in demand.'The 'demand for capital is infinite.'23The decline in the rate of profit,therefore,depends upon another cause.
'If,with every accumulation of profit,we could tack a piece of fresh fertile land to our island,profits would never fall.'24Fertile land,however,is limited.We have to resort to inferior soil,and therefore to employ capital at a less advantage.In the Principles he enforces the same doctrine with the help of Say,who had shown 'most satisfactorily'that any amount of capital might be employed.25If,in short,labour and capital were always equally efficient,there would be no limit to the amount producible.If the supply of food and raw materials can be multiplied,wealth can be multiplied to any amount.The admitted tendency of profits to fall must therefore be explained simply and solely by the growing difficulty of producing the food and the raw material.
Ricardo's doctrine,then,is Malthus carried out more logically.Take a nation in a state of industrial equilibrium.The produce of the worst soil just supports the labourer,and leaves a profit to the capitalist.The labourer gets just enough to keep up his numbers to the standard;the capitalist just enough profit to induce him to keep up the capital which supports the labourer.Since there can be only one rate of wages and only one rate of profit,this fixes the shares into which the whole produce of the nation is divided,after leaving to the landlord the surplus produce of the more fertile soils.
Accepting this scheme as a starting-point,we get a method for calculating the results of any changes.We can see how a tax imposed upon rents or profits or wages will affect the classes which are thus related;how improvements in cultivation or machinery,or a new demand for our manufactures,will act,assuming the conditions implied in this industrial organisation;how,in short,any disturbance of the balance will work,so as to produce a new equilibrium.Ricardo exerts all his ingenuity in working out the problem which,with the help of a few assumptions,becomes mathematical,the arithmetical illustrations which he employed for the purpose became a nuisance in the hands of his disciples.They are very useful as checks to general statements,but lend themselves so easily to the tacit introduction of erroneous assumptions as often to give a totally false air of precision to the results.Happily I need not follow him into that region,and may omit any consideration of the logical value of his deductions.I must be content to say that,so far as he is right,his system gives an economic calculus for working out the ultimate result of assigned economic changes.The pivot of the whole construction is the 'margin of cultivation'--the point at which the food for a pressing population is raised at the greatest disadvantages.
'Profits,'as he says,26'depend on high and low wages;wages on the price of necessaries;and the price of necessaries chiefly on the price of food,because all other requisites may be increased almost without limit.'
Ricardo takes the actual constitution of society for granted.The threefold division into landowners,capitalists,and labourers is assumed as ultimate,For him that is as much a final fact as to a chemist it is a final fact that air and water are composed of certain elements.Each class represents certain economic categories.
The landlord sits still and absorbs the overflow of wealth created by others.
The labourer acts a very important but in one respect a purely passive part.His whole means of subsistence are provided by the capitalist,and advanced to him in the shape of wages.His share in the process is confined to multiplying up to a fixed standard.The capitalist is the really active agent.The labourer is simply one of the implements used in production.
