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.
References
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.
Very good. Henry George, in his book Protection or Free Trade?, pointed out that workers would not be advocates for free trade when they realize that the benefits go to higher land rent rather than to wages. George’s remedy is not to restrict trade but to share the rent equally.
Answer to Question 1; No. He would have considered working people “producers”.
Answer to Question 2: No. Ricardo’s assertion is not obvious from the data but deduced from his own INTERPRETATION of the data in light of his ASSUMPTION that productive farmers are tenants and/or wage-earners.
Answer to Question 3: No, as above. Ricardo is assuming that people are consumers, and being a stock marketeer adding up prices on labels with negligible contact with real life, he is not observing events but making the logical error of assuming consumers are “all people” when in fact most of them are producers who cannot consume and in turn produce if they cannot sell what they are capable of producing.
Answer to Question 4: No, as above. In the form stated, Ricardo is neglecting the fact that specialisation in what we produce best may lead to over-production of trivia and under-production of necessities we could have produced (in Schumacher’s term) “adequately”. In view of his total disregard of consumers not in his own image and likeness I doubt moral “approval” would have entered into his judgement: he would have accepted bondage/wage slavery as natural.
So I don’t think, Merijn, that his inductive reasoning has been down-played, but I do agree that his deductive reasoning has been over-rated. His was the deductive method of c.1800, before the techniques of Boolean algebra, algorithmic looping and logical quantification had been developed, so he constantly makes what we should now recognise as logical errors. A hundred years nearer his time, the introduction to my ‘Everyman’ Ricardo says “In the early years of the nineteenth century men breathed the air of deduction. [Their] science was the bodiless creation of logic. Starting from one or two simple propositions, reason proeceeded to deduce cogently and inveitably therefrom a whole system of laws, relations and consequences. Given that the method was sound, and its employment faultless, the only source of error must obviously lie in the first elements, the ‘principia’, whence reason hatched her brood”. One of its ‘principia’ is that the method IS sound, or at least adequate for its task here. As it fails to account both for cyclic processes and the status of representations such as money, neither it nor Ricardo are sound.
As for his person, I am intrigued by brief comments on him (or in any case his family) by his rumbustuous contemporary, William Cobbett, in his ‘Rural Rides’. “The hop affair is a pretty good illustration of the doctrine of ‘relief’ [in the sense of adequate prices] from ‘diminished production’. Mr Ricardo may now call upon any of the hop-planters for proof of the correctness of his notions. They are ruined, for the greater part, if their all be embarked in crops”. And later: “When we were petitioning FOR REFORM, in 1817, my Lord Somers wrote and opublisheda pamphlet under his own name, condemning or conduct and our principles, and insisting that we, if let alone, should produce “A REVOLUTION, and ENDANGER ALL PROPERTY!” The Barings are adding field to field in Herefordshire; and as to the Ricardos, they seem to be animated with the same laudable spirit. This Osmond Ricardo has a park at one of his estates [now Bromsberrow, Glos., near Somers' Eastnor, with] a new porter’s lodge, upon which there is a span new cross as large as life. Aye, big enough to crucify a man upon! … [I should have had some famous sport] if my horse had been in a condition to carry me away as swiftly as he did from Osmond Ricardo’s terrific cross”.
It is not that nothing has changed between Cobbett’s reform movement and Occupy Wall Street. It did, but we’re back where we started.
Perhaps I should have read this first! It’s compelling reading, anyway.
http://www.paecon.net/PAEReview/issue57/Hudson57.pdf
Gentlemen & Ladies, Would anyone care to apply the theory to the RWE example of a newly retired middle-class “Couple A” whose fortune was reduced by 50% in the 2000-2001 Bust, then further reduced by another 50% in the RE Finance Meltdown from 2007 to now?
It seems especially important to consider the RWE constraints in calculating how much Couple A must earn/win to increase their assets enough to recover and enjoy their retirement plans they invested in from 1970 to 1999. Let’s say that had had done very well and amassed a net worth of $4 million, including a modest $1 million dollar home in Del Mar, CA, USA. Of course, real inflation and the dual income from new service sector jobs must befactored in as well. Let’s say that, after foreclosure & eviction, Couple A had total net wages of $1792/month plus SSA retirement, pensions funds & dividends of $5000 monthly, but all their low interest credit card rates were hiked to high risk levels and their credit rating ruined.
For the same period, let Couple B be lower middle-class of middle age with a recently unemployed husband, a demoted wife, an evaporated pension, and 2 children, 1 about to graduate from high school, and 1 attending junior college. They had a paper nest egg that declined from $2 milliion to $500K, managed to stay in their home, but now the mortgage is underwater. Their credit score is something over 600 now. The rest of the typical scenario should come easily with so many millions of examples generated over the last 12 years.
Couple C are 30ish lower serf-class folk who had an inheritance-based nest egg, with 3 school age age kids, 2 cars, 2 cell phones, 2 TVs, and 3 jobs paying combined net wages of $3200/month. They lost their first home and now pay $2000 monthly in rent & bills. You can make up the rest, eh?
It would also be nice to factorin some kind of realistic data on the likely impacts of further depredation by the GS Treasury Gang and the reactions & global dynamics of the major emerging 3rd World economies (with increasing competition for materials & jobs). I trust that all the other standard factors appropriate to the model will be updated.
Yet, it seems important for best case applicability and relief for both small business and workers that a separate set of charts & graphs be made for the most likely worst case scenario, i.e., another colossal crash & major global depression flattening the Plutonomy Bubble for 20 years or so, aggravated by lack of summer sea ice inthe Arctic by 2035, ongoing rule by corruption & mass stupidity, progressive increase of resource wars, famine, pestilence, etc…
Oh — PS: With due respect to Adam Smith’s enlightened ghost or current incarnation, hopefully on some luckier planet, I see what may be irremediable problems in his core theorems & related notions. Let’s take the quote, “‘…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.”
I suppose I could be wrong, but while I appreciate his pragmatic view of the historic tendency of the proverbial Producer to shear the Consumer as much as possible, his own revelations & admissions seem to falsify his primary axiom, that consumption is the sole aim and purpose of production.
Though there may be little to gain in comparing the most primitive cultures with our own, the development of social programming, notions of value, wealth, property and the basis of economic theory can be illuminated by highlighting the key elements and differences of primal culture and Consumer Society or Plutonomy (modern quasi-civilization).
First, surely we can all agree that production for the sake of exploiting or impoverishing others renders their consumption a secondary aim, subsidiary to the primary purpose, pesonal gain. Clearly, since the days of our earliest, most enterprising ancestors, production was performed for consumption only indirectly. Tools were first produced for use by the producer and the same could be said of shelter & clothing production, with the exception of items made for young children. Now, rather than gloss the issue and say that the tools, huts, loincloths & moccasins were consumed, we should realize that there is a basic difference between separated producers and consumers socialized for life in a technological culture where specialization and division of labor for mass production is the norm.
For people who were mostly self-sufficient, their was no thought of producer and consumer as abstracted principles, and we have ample evidence that there was generally little if any notion of work or play, for all endeavors tended to have the character of sacred art or, at the least, intensely engaging, inspiring, and rewarding enterprise or exploration, with a preponderance of enjoyable novelty. There were also the more miraculous and joyful events and interactions with children, lovers, friends, and group activities. Most of those were held to be of a sacred character, deserving of much reverence and celebration. We know that on average hunter-gatherer people spent no more than 4 to 6 hours daily on the necessities for thriving in a “rich” environment (like the Kalahari or the Tundra). The rest of their time was spent in what producers & consumers call leaisure.
As some peoples gradually drifted into using more sophisticated material technologies, increasing specialization & division of labor caused increasing dependency [on items produced by others] in direct inverse proportion to decreasing ability of each person to produce the necessities of life and culture on their own. With increasing division of labor came more division, social stratification, and atomization of communal relations, roles, responsibilities, and positions of political power. Revisionist anthropology shows that psychosocial individuation and role identification generally tends to accompany increasing social sophistication. As societies developed more abstracted, systematic ways and means, supporting more systemization of all aspects of culture and livelihood, the basis and balance of power shifted ever more from natural, biocentric essentials, to abstract stratagems and ideologies of social control. The principle of “use it or lose it” ruled as cultures became ever more urban, technical, ideological, systematic, and socially sophisticated. As that trend developed, the sophisticated societies increasingly used and relied on symbolic abstractions for almost all aspects of culture and life.
In the former (“A”) and latter (“B”) cases, in an environment with abundant resources and necessities, certain factors are generally if not totally predominant:
1-A: little or no specialization, thus not much need of product acquisition
1-B: specialization is dominant, almost everyone feels a need to acquire almost everything from somebody and/or somewhere else, leading inevitably to reactionary factionalism and sociopathic individualism as structurally inherent symptoms that propagate proportionally with increasing atomization, alienation, and disequity
2-A: material industry of the culture is personal, communal, local, with little or no need for trade or imports & exports
2-B: systematic, externalized, systematized industry becomes more pervasive, trade, import & export increase as production & consumption of necessities & luxuries become more pervasive, more entrenched as normative social essentials
3-A: primal relatedness to nature, environment, and the communal group supports personal power, responsibility, resourcefulness, creativity, and wisdom
3-B: increasing urbanization, isolation & social stratification in sophisticated cultures led to ever less general & personal empowerment, wellness, freedom, affluence & peace, characterized by the cyclic rise and fall of succeeding tyrannies & plutonomies
4-A: primal ability to create tools, shelter, clothing, art, music, culture, medicine, mastery of hunting, communication, and visionary experience precludes the need for a system of abstracted values, money, and industrial enterprises for mass production
4-B: division of labor emerged as a symptom of increasing codependency as individual capabilities decreased, complicating cultural complexification, increasing psycholinguistic sophistication; sociopolitical devolution as general empathy, compassion, ethics & values all declined
5-A: primitive living in natural harmony, in direct relation to the environment with great mastery & self-reliance, tends to sustain healthy spirituality, appreciation, reverence & respect for life and nature
5-B: with decresing self-reliance & mastery, respect for nature & life, spirituality & ethics all tend to devolve as materialism increases; cultural values decline as general quality of life & appreciation decrease, destructive ecological impacts mount
6-A: primal living, with appreciation of nature’s infinite complexity, without cultural complication, tends to sustain great appreciation of children, elders, family, community, and the importance of wellness, sanity, wisdom, compassion, responsibility & effective responsiveness
6-B: as the sophistication, abstraction, alienation, illness, inadequacy and addictive codependency of industrialized egos increase, the ability to understand the need for great appreciation and care for children, elders, family, and community, decrease in direct proportion to the decline of general wellness, sanity, wisdom, compassion, responsibility & effective responsiveness
Now, while some of the above may seem clearly questionable, deep study of rehabilitated (nonchauvinistic) anthropology will prove the essential points generally true. Anyway, the six aspects of cultural quality are considered for determining tendencies and likelihoods not fixed absolutes or deterministic axioms. The behaviors, personalities, and tendencies of any human culture of any period are too complex to reduce to a few hard, inflexible axioms. Yet, deep insights and great generalizations can be expressed with amazingly helpful proverbs and pithy sayings that hold true after thousands of years.
Most of you probably realize that most of the above seems pretty obvious to anyone who studied Dao De Jing (Tao Te Ching), the works of Kong Fu Zi (Confucius), the other great Sages, and some history of ancient Asia, etc. If it seems that too many economists and students of economics are incapable of appreciating the above, then the curricula clearly needs a major upgrade.
Without sufficient scope and depth, how will economics or economists ever reach their full potential? Falling short of that, how could we then expect anything other than the failure of modern civilization?
This world of 7 to 9 billion people is fundamentally different than one with only 1 or 2 billion people. The axioms and attitudes appropriate to 18th & 19th century social games are ecocidally irresponsible and monstrously inappropriate now. A few examples may help:
> 90% of the fish are now gone and over 15% of the tiny things fish eat are bits of decomposing plastic.
> acidification of the ocean (caused by pollution and excess carbon dioxide) is accelerating, killing coral reefs and reducing plankton populations (which reduces fish populations and oxygen production). 150 years ago, plankton were producing over 60% of Earth’s atmospheric oxygen. Plankton mainly comes from coral reefs and the eggs of creatures that lived there.
> over 100,000 weird chemicals — all of which may be endocrine disruptors and/or epigenetic mutagens — are flooding the biosphere, our life-support “system”
We could relatively quickly generate a rather large catalog of problems that could not exist 150 years ago, or even 60 years ago. The time is definitely over ripe for some proactive RWE. Right?
PS: For those of you who have yet to study the Greenbook and Collapse: How Societies Choose to Fail or Succeed (by Dr. Jared Diamond), I thought it might help to offer this little teaser:
Seven Essentials of Social Success
Economics is a science of cultural activity, focusing mainly on the behaviors and transactions of individuals, communities, and subgroups. Successful cultures are composed of healthy, successful communities. Healthy, successful communities are composed of healthy relationships, primarily thriving families. Five of the basic factors affecting the fate of civilizations were revealed in Dr. Jared Diamond’s best selling book, Collapse: How Societies Choose to Fail or Succeed. Those five critical factors are:
1. environmental impact
2. climate change
3. neighboring allies and enemies
4. loss and gain of trading partners
5. society’s responses to all the above
The first two processes are interactive. Agriculture, construction, industry and wars have caused massive deforestation and radical climate change, aggravating and accelerating disaster. All the factors relate to use of our brains as much as anything.
The failed empires of Europe, Asia, the Middle-East, Africa, Polynesia, and the ancient Americas had terminal defects, misconceptions, misunderstandings, misuse of inner and outer resources, and missed opportunities in common. Diamond also covered several societies that faced severe crisis, responded effectively, adapted and succeeded.
Two prerequisites foster the five other determinants of cultural health and longevity, giving us seven essentials of sustainable social success. The seven essentials are:
1. A viable paradigm, a biocentric conceptual context supporting a sane worldview
2. Loving respect for nature, sustaining commitment to the commonwealth, the joy and wellness of children, elders, enlightened spiritual leaders and wise guardians
3. Biocentric awareness and empathy, compassionate sensitivity to environmental conditions, fostering and supporting optimal quality of life for all generations
4. Consciousness of climate change with active commitment to eliminating or mitigating contributing factors and circumstances affecting its severity and rapidity
5. Commitment to sustainably positive, peaceful relations with neighbors, allies and enemies alike, fostering constant improvement with Win-Win strategies and dialogue
6. Thriving through ongoing development and maintenance of beneficial policies, strategies, and enterprises that foster and support lively cultural exchange with economic allies and competitors, while minimizing negativity, risk, damage, and losses
7. Positive, creative cultural responses to whatever challenges sustainably healthy success
With a valid paradigm and abiding commitment to a lively commonwealth and general well being, success can grow out of near disaster. Its members decide whether a society will succeed & rise or fail & fall. A society lacking a valid conceptual base, lacking adequate concern for the wellness of children, elders, nature and the general quality of life, lacks a viable basis for making consistently wise decisions and initiating life-sustaining responses.
Defective societies fail. Is the global Consumer Society choosing to succeed? Do a majority of consumers consciously choose anything or are they really just stampeding towards Walmart like a herd of panicked cattle heading for a cliff? These issues are essential to modern economics and anyone who cares about the quality of life or the future.