Summary and Analysis
Chapter 4
Introduction
Adam Smith's vision of the world demonstrated glowing optimism when he founded the school of Classical Economists. Ironically, the chief spokesmen for that school — David Ricardo and Thomas Malthus — while accepting the principles which Smith laid down, differed sharply from him in their pessimistic views of an ominous future. Ricardo and Malthus violently disagreed with each other's economic views on practically every point except one — the dangers of overpopulation. When one published a book or article developing a particular economic thesis, the other attacked it. Yet, despite differences of philosophy, the two economists were congenial and held a high personal regard for each other.
Of Dutch extraction, David Ricardo was a successful Jewish stockbroker who, by the age of 26, became financially independent. He won widespread respect, and his social position ranked high, including membership in Parliament where he earned the title, "the man who educated Commons." His Principles of Political Economy (1817) helped shift the economic picture from Smith's optimism to a widespread pessimism. A practical man in financial matters, Ricardo was essentially a theorist who created a dry, mechanistic picture of society.
In contrast, the Reverend Thomas Malthus had none of Ricardo's good fortune or social success. He never enjoyed more than a modest income and was continually criticized for his ideas. In fact, his biographer called him "the best abused man of his age." Spending most of his life in academic research, Malthus was not at all practical in financial matters, yet was most practical in his economic views.
David Ricardo (1772-1823)
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.
Analysis
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.
Thomas R. Malthus (1766-1834)
Summary
Oddly enough, since his income was modest and he owned no land, Thomas Malthus defended the landlord and attacked Ricardo's views. Instead of viewing landlords as villains, Malthus praised them as ingenious capitalists. Still, Malthus was pessimistic over the future of capitalism, but for a different reason. He warned of general gluts, when the process of saving might lead to a lessened demand for goods and thereby to an excessive quantity of products without enough buyers. Although Ricardo refuted this logic, Malthus did demonstrate his foresight in predicting depressions. While motivated by compassion for the poor, Malthus earned criticism by opposing relief and housing projects, objecting to these measures on the grounds that charity is really cruelty in disguise. He reasoned that by keeping the poor alive, they would continue to propagate, producing more poor.
It was not his articles on economics nor his Principles of Political Economy (the same title as Ricardo's book) which made Malthus famous. Rather, it was his anonymously published Essay on the Principles of Population as It Affects the Future Improvement of Society (1798), whose reception was so great that Malthus expanded the original edition from a 50,000-word pamphlet to a 600-page book. The effect changed Adam Smith's optimism to an outlook so bleak that Thomas Carlyle named economics "the dismal science." Critics heaped scorn and derision on "Parson" Malthus. Yet approval came from an unexpected quarter, for David Ricardo substantiated Malthus' claims about the perils of rising population.
The inspiration for Malthus' masterpiece came from his reading of Political Justice, an incorrigible piece of optimism by William Godwin. Godwin's vision of the future was a utopia containing neither war nor crime nor disease nor government — nothing but complete happiness. Malthus expressed his dissension through his Essay on Population.
Malthus' thesis — known as the Malthusian Doctrine — states that population grows at a rate greater than the means to feed it, and, if unchecked, the world's population will double every twenty-five years.
Being the first economic statistician, Malthus based this estimate on the population growth of the United States, where a real census appeared before it did in England and revealed that the U.S. population had doubled in twenty-five years. So, explained Malthus, population will continue to increase geometrically, doubling itself from 1 to 2 to 4 to 8 to 16 to 32 times its original size until it reaches cataclysmic proportions.
Meantime, the land, which cannot keep pace with subsistence, is put into cultivation in units of one additional section at a time. In other words, the means of subsistence can only increase arithmetically from 1 to 2 to 3 to 4 to 5 to 6 and so forth. Clearly, Malthus concluded, the result will be too many people with not enough food — that is, if population growth continues unchecked.
How can population be checked?
- First, by positive checks — war, disease, infanticide, poverty, and famine. However, it's obvious that these age-old inhibitors cannot halt the disastrous population spiral.
- Second, there are the preventive checks of sexual abstinence and vice — that is, prostitution and homosexuality. What Malthus advocated as the only possible solution is abstinence or "moral restraint." He called for late marriages because fertility lessens in the later years and passions cool. Even though he was acquainted with birth control, he disapproved of it on moral grounds. Being a minister, Malthus could hardly advocate vice, so he stressed the advantages of restraint. However, the Reverend, a realistic observer of human conduct, doubted the ability of people to practice restraint. Consequently, he predicted that the future of humankind will be starvation.
Are Malthus' facts correct? Yes, if measured by the actual rate of population growth in much of the world, particularly in India and China. Why, then, has his prediction not come to pass? Basically, because of the widespread use of modern birth control methods, especially in the Western world, and the tremendous increase in agricultural technology, which provides more than enough food in advanced countries.
Analysis
While the majority of economists and scientists consider the Malthusian Doctrine invalid, an increasing number of demographers (scientists who study population statistics) warn that it is very real indeed. Less than 20 percent of the world's people depend on preventive checks. These people live in advanced areas of the world, especially Europe and the United States. The countries where population explosions occur are less technologically advanced areas in the Third World, notably India, China, and Latin America. Ironically, the increased use of modern sanitation, hygiene, and preventive medicine has increased the problem of overpopulation by reducing high death rates, which once served as a positive check.
Malthus was not as incorrect in his analysis as modern economists would have us believe, but the Malthusian Doctrine is still a specter that haunts the minds of an increasing number of modern theorists. In any case, the warnings of the chief spokesmen for the school of Classical Economists swayed the minds of the nineteenth century, and the wonderful world of Adam Smith became the gloomy world of Thomas Malthus and David Ricardo, paving the way for the Utopian Socialists.
Glossary
Iron Law of Wages Labor's wages must remain at the subsistence level, or natural price, because of the worker's tendency to produce more children. (David Ricardo)
Malthusian Doctrine Thomas Malthus' thesis that population, unless checked, grows at a greater rate than the means of subsistence and will result in starvation.
Neo-Malthusianism A name originally denoting birth control.