4.2 The rapid decline of Ricardian economics

Before setting out to explain a problem one must be quite sure that the problem really exists. Surely, a partial answer to the conundrum of Ricardo's popularity and dominance over English economics is that that dominance was largely a myth. Until recently, the orthodox view in the history of economic thought was that Ricardianism dominated British thought from the date of Ricardo's Principles through Jevons's abortive revolution in 1871, and until the 1890s when Alfred Marshall's neo-Ricardianism supposedly integrated marginal utility into a basically Ricardian framework. One of the last expressions of this orthodoxy came in 1949, when Professor Sydney G. Checkland, from an anti-Ricardian perspective, bewailed the manner in which the two Scotsmen, James Mill and McCulloch, like Ricardo – the Spanish-Portuguese Jew – expatriates from their native culture, and therefore presumably alienated from mainstream English life, used brilliant cadre tactics to acquire their hegemony over English thought. Checkland saw that Mill was the cadre leader of the Ricardians, cleverly advising Ricardo not to give publicity to his critics by deigning to reply to them in the third, 1821 edition of his Principles. Mill wrote his Elements of Political Economy as a Ricardian textbook in 1821, but since it lacked popular appeal, the younger McCulloch, a charismatic, enormously strong, booming, burly, Scotch whisky-drinking figure of a man, took over as the popularizer and propagator of Ricardianism.

The first important revision of the myth of Ricardian triumph came with the Marxist Ronald Meek's rebuttal of Checkland the following year.⁷ Checkland, he points out, made the crucial mistake – following J.M. Keynes – of treating Say's law as equivalent to the Ricardian system. While Ricardo and McCulloch followed Mill in considering Say's law to be very important, they did not regard it as crucial to the Ricardian system, which actually comprised the Ricardian theories of value and distribution. While Say's law indeed triumphed early, with only Malthus temporarily opposing it, the Ricardian system proper met a very different fate.

In fact, as he managed to do in other areas of the history of economic thought, John Maynard Keynes, in his General Theory, skewed and distorted Ricardian development. It was only Keynes, in his preoccupation with promoting government deficits and inflationism and attacking Say's law, who made that law the central feature of the Ricardian system. It was also Keynes who distorted the facts by holding up Malthus as the proto-Keynesian hero, stubbornly calling for an anti-Say and anti-Ricardian alternative to the Ricardian system. On the contrary, Malthus, despite various differences, considered himself a Smithian and was generally friendly to Ricardianism as well as to Ricardo personally. Malthus's interest in the alleged ‘general glut’ and in denouncing Say's law, was an ephemeral product of the post-Napoleonic War depression in England. When England's prosperity returned after 1823, Malthus totally lost interest in the general glut question, and wrote no more about it. Say's law had triumphed except among a few radical fringe people in the economic underworld; and Malthus steadfastly refused to be drawn into alliance with them. These fringe persons, who continued their worn-out cries of a general glut into the 1830s, included the prolific left Tory statist poet and essayist Robert Southey (1774–1843), who had attacked deflation after the Napoleonic War, and MP, geologist, and authority on volcanoes George Poulett Scrope (1797–1876). Raising the fallacious cry of underconsumption, Scrope, in his Principles of Political Economy (1833), charged that any decline in consumption in favour of a ‘general increase in the propensity to save’ would necessarily and ‘proportionately diminish the demand as compared with the supply, and occasion a general glut’. In this old proto-Keynesian fallacy, savings apparently ‘leak’ out of the economy, and result in permanent?) depression. Apparently, investment, since it is transitional and not ‘final’, is not considered spending at all. And then, as in all varieties of crank economic analysis, the price system, and the relationship of selling prices to costs, is somehow not considered worthy of mention at all.⁸

George Poulett Scrope was originally named George Thomson, son of John Poulett Thomson, head of a firm of Russia merchants. He took the name Scrope after marrying an heiress of the Scrope family. Born in London, Scrope studied at Oxford and Cambridge, and was a member of the House of Commons for 35 years. A champion of free trade, he wrote so many pamphlets on economic issues (about 70) that he was commonly dubbed ‘Pamphlet Scrope’.

In contrast to the triumph of Say's law, the Ricardian system proper was rapidly repudiated in the world of English economics. In January 1831, eight years after Ricardo's death, Colonel Robert Torrens addressed the Political Economy Club that Ricardo had helped to found. Torrens raised the crucial question: how many of the Ricardian principles were still held to be correct? His answer: all the great principles of Ricardian system had been abandoned, especially the critical ones of value, rent and profits. Samuel Bailey, in his great espousal of the utility theory of value in 1825, had smashed the labour theory; Thomas Perronet Thompson had disposed of the Ricardian theory of rent; the theory of profit is unsound because Ricardo ignored the replacement of capital; and the Malthusian subsistence theory of wages had been generally abandoned.

To the Marxian Ronald Meek, this wholesale desertion of Ricardianism comprised a capitalist plot against the labour theory of value, whose socialistic implications had been drawn out during the 1820s by the Ricardian socialists. At any rate, by 1829–31, there were no adherents of the labour theory of value left in mainstream British economics; to Meek, the only exception was McCulloch, who in turn had abandoned Ricardo on many other issues, including the idea of productive vs unproductive labour, the theory of profit, and the theory of class conflict on the market implicit in the Ricardian theory of distribution.⁹ Only Say's law, with its strong laissez-faire implications, had survived what Meek laments as ‘the purge’.

But the ‘purge’ or abandonment came even earlier, antedating the Ricardian socialists. Professor Frank W. Fetter, in his classic article,¹⁰ points out that upon Ricardo's death in 1823, James Mill wrote despairingly to McCulloch and noted that they were ‘the two and only genuine disciples’ of Ricardo in existence and McCulloch did not stay one for long. Fetter notes that economic opinion in the 1820s was diverse and unsettled, except for a general adherence to free trade. Everyone dismissed the portentous Ricardian conclusion that profits varied inversely to wages, except as a banal arithmetic truism. Furthermore, even Ricardo himself had pointed the way to abandoning his own crucial permanent subsistence theory of wages (which the German socialist Ferdinand Lassalle was later to call ‘the Iron Law of Wages’). Ricardo had adopted the subsistence wage theory, taken from the hard-core Malthusian first edition of Malthus's Essay on Population (1798). But many of his statements apart from this rigid formal model were really adopted from the much weaker, indeed contradictory, second edition of the Essay (1803). These were qualifications which Marx would correctly note amounted to a desertion of the ‘iron law’. Criticism of Malthusian doctrine prevailed in the journals by the late 1820s. Thus, in early 1826, a writer noted in the Monthly Review that the law of relentless increase in population operates only in poor societies. It moves

in an inverse proportion to the acquisition of wealth;... it is only when people become more luxuriant, when those engagements which form the principal charm in humble life lose their attractions by the substitution of habits of refinement, that the increase [in population] becomes progressively less.¹¹

Finally, in 1829, Nassau W. Senior's letters to Malthus effectively put the boots to the iron law. In this published exchange of correspondence, following the delivery of his lectures on population (Two Lectures on Population, to which is added A Correspondence between the Author and the Rev. T.R. Malthus (London, 1829)), Senior dealt a devastating blow to the Malthusian doctrine. In the first place, while agreeing that excessive population growth could conceivably one day constitute a problem, Senior in effect stood Malthus on his head by pointing out that while population indeed pressed on the food supply in undeveloped countries, the history of the prosperous countries of the West had been marked by an increase in the food supply outstripping the rise in population. Indeed, this fact is simply demonstrated by the rising living standards of the western countries over the centuries. And this economic growth must be due to a general tendency of agricultural and other productivity to rise, as well as people devoting themselves to safeguarding their higher living standards. As a result, population does not grow enough to reduce the living standards of the public to the subsistence level. And while Malthus would not verbally go so far as Senior in speaking of a general ‘tendency for food to increase faster than population’, it was clear from Malthus's reply that the mellower Malthus of the second edition had triumphed. That Senior saw the full implications of the changes of the second edition is also demonstrated by his own formulation of the population principle: ‘that the population of the world... is limited only by moral or physical evil, or by fear of the deficiency of those articles of wealth which the habits of individuals of each class of its inhabitants lead them to acquire’. (Italics added.)

But while the iron law of wages was in fact finished de facto, it still continued to reign, as it were, de jure. For Nassau Senior, suffering from excessive piety toward Malthus, lacked the instinct for the jugular that would have stripped the veil of evasions from the grave fallacies of the Malthusian doctrine. Instead, Senior collaborated in the sham, insisting, though he knew better, on continuing to hail the Malthusian principle of population as a cornerstone of economic science. As Joseph Schumpeter, ever alive to the follies of economists, lamented:

[Senior] always treated Malthus with infinite respect – he even called him a benefactor of humanity (sic!) – and did all in his power to minimize his deviation from what he evidently considered to be established doctrine. All the less justification is there for the practice of some later writers who, with nauseating pontificality, treated Senior as a none too intelligent pupil who needed to be set right by Malthus. As a matter of fact, it is perfectly clear that Senior realized the extent to which Malthus' qualifications ought to have spelled recantation and to what degree his adherence to some of his former opinions spelled contradiction.¹²