Summary
During the forty years following the publication of Adam Smith's Wealth of Nations, rivalry between the rising industrial capitalists and the conservative, complacently landed aristocracy dominated the English scene, particularly over the matter of food prices. Since capitalists had to pay at least a subsistence wage to workers, they were vitally interested in lowering grain prices. To this end, they welcomed cheap, imported wheat and corn. Landowners and landlords naturally resented imports because they depressed prices and profits from their own grains.
The landlords' resentment was translated into action in Parliament where they held the majority. The result was the passage of the Corn Laws, which imposed duties on imported grains, thereby effectively keeping low-priced grain out of England. The landlords' political clout was so great that Parliament did not repeal the Corn Laws until thirty years later.
Observing the advantageous position of the landlord, the struggle of competing capitalists, and the economic plight of the worker, David Ricardo envisioned an unpromising future for capitalism. To Adam Smith, society appeared balanced and harmonious, but, to Ricardo, society was a bitterly competitive contest. He viewed the worker as little more than an automaton, whose only human expression was an indulgence in sex. Instead of raising the family standard of living when wages rose, the worker produced more children and thereby increased the labor supply, offsetting the tendency for wages to rise as the supply met and exceeded the demand for workers. Thus, the worker was doomed to gain no more than a subsistence level of wages.
As for capitalists, Ricardo saw them as eternally seeking profits but engaged all the while in fierce competition with other capitalists. This situation naturally reduced profits. Worse, the capitalist was further squeezed by the landlord because profits depended largely on the amount of wages which had to be paid, and the high price of grain always resulted in high food prices, which led to higher wages. While Ricardo considered the roles of the worker and the capitalist in the market system to be legitimate, he saw the landlord as a villain.
Ricardo explained rent—the landlord's income—as a very special kind of return which originated from the differences in cost between productive land and less-productive land. In other words, the yield was so much greater from productive land that its cost of production was much less than that of less-productive land. This difference in costs was represented in rent, for the selling price of the product—artificially high due to great demand and lack of competition from imported grains—was the same for both yields.
Rent in the nineteenth century was not controlled or restricted by free competition because land did not change hands. Thus, Ricardo viewed land as a monopoly. As the economy progressed and the population increased, more farming was needed to meet the increased demand for grain necessary to feed that population. This situation pushed the selling price of grain up and increased the income of the landlord. Thus the capitalist, who paid increased wages to the workers to enable them to live, also suffered. Therefore, concluded Ricardo, of the three parties in this bitter struggle—worker, capitalist, and landlord—only the landlord profited.
As to the future, it held little promise as the worker was doomed to a subsistence wage because of his growing family, and the capitalist had his profits gobbled up by the landlord. Ironically, Ricardo was himself a landlord. However, this fact did not prevent him from attacking what he saw as an evil, and he continually sought the abolition of the Corn Laws. As a result, David Ricardo became the champion of the rising capitalists.
Commentary
A little over twenty years after the death of David Ricardo, the Corn Laws were abolished (1846), and the industrial capitalists eventually broke the power of landlords and replaced them. Consequently, the dismal future which Ricardo had envisioned did not come to pass. One of Ricardo's main contributions to economic theory was his concept that rent rises from differences in the quality of land. This situation was a direct refutation of the physiocrats' concept that rent rose from the bounty of nature.
Of greater importance, however, was Ricardo's theory of wages. While not called as such in the text, this theory has been labeled the Iron Law of Wages—which states that wages must remain at the subsistence level. This level, according to Ricardo, is labor's natural price—the income which is necessary for the worker to exist. By applying the doctrine of laissez faire, Ricardo argued that wages should be left to free competition and should never be controlled by government interference. Capitalists agreed with his theory.
