Four questions about David Ricardo (and his times)
from Merijn Knibbe
One of the economists who keeps popping up on this blog as well as in the Real World Economics Review is David Ricardo. And he, or at least his ideas, get a bad press. Is that right? Maybe not entirely… but look for yourself. I’ve made a little examination Ricardo-ology with four questions (each 25 points, you will have to do the grading yourself).
Question 1. Read the two parliamentary speeches (June 1822) of Ricardo, below, carefully and answer the next question: do you think that this man might have been sympathetic towards the ‘Occupy Wall Street’ people?
IRISH BUTTER TRADE
20 June 1822
Sir N. Colthurst moved ‘that an additional duty of 10s. per cwt. be imposed on foreign butter imported into this country.’ Mr. Robinson opposed the motion.
Mr. Ricardo said, the Irish gentlemen complained of want of protection, but what their rule of protection was he could not imagine. In this instance they had a protecting duty of 25s. per cwt.; but he supposed they would not be satisfied unless they had a complete monopoly of the trade. In his opinion, the proposition ought to have been the other way. Parliament ought to be called on to get rid of this protecting duty by degrees, by which means the trade would be rendered really beneficial to the country. The House was assailed on all sides for protecting duties. One day they were assailed by the butter trade, then by the dealers in tallow, then the West India planters complained, and the shipping interest also demanded legislative interference. But what did Adam Smith, that great and celebrated writer, say on this subject? His words were—“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; as if production and not consumption were the end of all industry and commerce.” No man could doubt the truth of this proposition. With respect to the application now made to the House, it was founded on a petition from the city of Dublin, which falsely stated, that the trade in butter had fallen off considerably. So far from that being the fact, it was, with the exception of one or two years, one of the greatest years of exportation that had ever occurred.
The motion was negatived.
CORN IMPORTATION BILL
3 June 1822
The new corn bill based on Lord Londonderry’s resolutions [cp. above, p. 155], having been brought in, Mr. Canning proposed the addition of a clause to allow the taking of foreign corn out of the warehouse for being ground into flour for exportation. Sir T. Lethbridge opposed the clause as likely to promote the introduction into the home market of foreign corn in the shape of flour.
Mr. Ricardo agreed, that if the clause could not be introduced with a full security against the flour coming into the home market it ought not to be admitted; but, if that security could be found, it would be most unjust to deprive the holders of foreign corn of it. He thought the bill of the noble lord would be a great improvement on the present law. The hon. member for Cumberland founded all his arguments on the value of corn in pounds sterling; but he (Mr. R.) did not regard the pound sterling. He was anxious that the people should have an abundant supply of corn and an increase of their comforts, and he thought a greater freedom in the trade calculated to produce those effects. He differed entirely from the hon. member, as to the ill effects which it would have upon the demand for labour.
The clause was agreed to.
On the question that 70s. be the permanent price at which wheat shall be imported, Mr. Whitmore moved to substitute 64s.; Mr. Wodehouse moved to substitute 75s.
Mr. Ricardo1 expressed his surprise at the proposition of the hon. member for Norfolk; since the most active supporters of the agricultural interest had declared that 67s. would afford adequate protection to the farmer. He thought the proposition of the hon. member for Bridgenorth deserving the support of the House. High protecting prices would only benefit the landlord at the expense of the rest of the community, not excepting even the farmer.
The original clause was agreed to.
Question 2. According to Ricardo, above, “High protecting prices would only benefit the landlord at the expense of the rest of the community, not excepting even the farmer”. Might it have been the case that events in his own time, instead of deductive reasoning, led Ricardo to make this statement (consider the graph below).
Source: Knibbe, 2006.
The graph shows an index of the rent of one hectare of good coastal clay soil land in Friesland, a northern province of the Netherlands, divided by the wage level (boarding labor, imputed wage for the farmer, day labor). After, about, 1765 prices of agricultural products started to increase, a development which was at least partly triggered by increasing demand from the UK, which at this time changed from a net exporter of grains to an importing country, especially in years with a bad harvest (Becket and Turner, 2011). Friesland exported butter and oats to the UK and especially to London and was, in the period up to 1866, possibly the most important foreign supplier of butter and, later, life animals of the London market (anyone who can figure this out on the basis of English sources will get a bonus). Productivity in Frisian agriculture did not increase in this period (Paping, 1995; Knibbe 2006). Nominal wages declined somewhat but real wages declined. About two-thirds of agricultural land was rented, rents had, aside from the occasional hunting dog for the landlord, been monetized for at least two and a half centuries. The land market was as free as anywhere in Europe (and much more ‘modern’ than in the UK)(Knibbe, 2011).
Question three. Ricardo stated, above, that “He was anxious that the people should have an abundant supply of corn and an increase of their comforts, and he thought a greater freedom in the trade calculated to produce those effects.”. Might it have been the case that events in his own time, instead of deductive reasoning, led Ricardo to make this statement (consider the table below).
Table 1. Net imports of grains, percentage of domestic production (UK: wheat; Netherlands: all grains)
The Netherlands United Kingdom
1804-’09 10 n.a.
1814-’30 10 n.a.
1831-’35 26 1
1836-’40 13 12
1841-’45 18 10
1846-’50 24 24
1851-’55 23 21
1856-’60 30 n.a.
1861-’65 38 29
Sources: Turner and Beckett, 2011; Knibbe, 2007.
The graph shows that the UK imported increasing amounts of grains (domestic production was increasing too). The 1% net imports of 1831-’35 seems low but this is an average, in years with bad harvests, like 1816, this could increase quite a bit. From about 1760 and surely after 1790, the population of the UK started to increase at an unprecedented pace. The growth of the population of course necessitated an increase in the availability of food, which was partly met by the increase of domestic potato and grain production but also by increasing imports, therewith, except for the potatoes, mimicking developments in Holland (I mean Holland, not the Netherlands) in the 1500-1650 period. The increase of grain imports in Holland (“the mother of all trades”, as it was called) enabled Holland and Frisian farmers to specialize on, among other things, dairy.
Question four. Ricardo is famous for his theory of comparative advantage: if everybody specialises in what he or she does best, everybody benefits (when trade is free). This is, however, essentially a non-monetary theory. We can monetize the theory. Do you think that the theory still holds when (as happened in Friesland) landowners reap the profits from the higher price level caused by international trade while real wages decline, because of this higher price level? Or when export production of grains leads to some kind of slavery/very bound labor, as happened in the Baltic area? Do you think, considering the ideas of Ricardo on rents, that Ricardo would have endorsed this kind of thinking?.
P.S. – my own idea is that the inductive qualities of mr. Ricardo have been downplayed, while his deductive reasoning has been overrated – or at least has been taken out of the inductive and historical context.
Beckett, J. and M. Turner (2011), ‘Agricultural productivity in England, 1700-1914’ in: Olsson, M. and P. Svensson (eds.) Growth and stagnation in European agriculture. Rural History in Europe 6, Brepols, Turnhout, 2011, 57-82.
Knibbe, M. (2011), ‘Agricultural productivity in the coastal and inland area of Friesland, 1700-1850’, in: Olsson, M. and P. Svensson (eds.) Growth and stagnation in European agriculture. Rural History in Europe 6, Brepols, Turnhout, 2011, 82-116.
Knibbe, M. (2006), Lokkich Fryslan. Landpacht, arbeidsloon en landbouwproductiviteit in het Friese kleigebied, 1505-1830, Historia Agriculturea 38. NAHI, Groningen.
Knibbe (2007), ‘The per capita availability of food and the standard of living in the Netherlands, 1807-1913’, Tijdschrift voor Sociale en Economische geschiedenis 4, no. 4, 71-107.
Paping, R.F.J.(1995), ‘De agrarische productie in Groningen 1762-1862: een alternatieve schattingsmethode’, NEHA-jaarboek voor economische, bedrijfs- en techniekgeschiedenis 58, 172-216.