Chapter 4. The Decline of the Ricardian System, 1820-1848
1. The Conundrum of Ricardo's Popularity
What accounts for the popularity of Ricardo's principles and for the enduring dominance of the Ricardian system?
The marginal utility revolutionary W. Stanley Jevons, writing the preface to the second edition of his great Theory of Political Economy in 1879,
was forced to complain of the continuing dominance of the Ricardian doctrine, and to lament that when, at length, a true system of economics comes to be established,
It will be seen that that able but wrong-headed man, David Ricardo,
shutted the car of economic science onto a wrong line.
Indeed. And Ricardo won the day with a theory that was not only far from self-evident,
but in many ways bizarre, such as the labor theory of value,
and he wrote his work in a crabbed and obscurantist style
that would hardly be expected to sweep the field,
either among laymen or in those more particularly interested in economics.
Part of the explanation, as Schumpeter pointed out, is that Ricardo was politically in tune with the zeitgeist.
Even though his methodology was so abstract as to be divorced from and to falsify reality,
Ricardo's motivation was not abstract theory but its use in advancing politico-economic conclusions.
Ricardo, like Mill, was devoted to free trade and laissez-faire, and as we shall see, to
hard money, and he applied his abstract system like a hammer in their service.
This ideology was fast becoming the wave of the future in England in the circles of businessmen
and intellectuals.
But what of Ricardo's abysmal writing in style and in organization?
Dr. Gray's heartfelt critique is on the mark.
As to the form rather than the substance of Ricardo's writings, it is perhaps sufficient
to say that he was no writer.
He himself dimly realized that he was a bad writer, but it is doubtful whether he can
have known the whole truth.
It is undiscerning flattery to regard his chief work, The Principles of Political Economy
and Taxation, as a book at all.
Another does it suggest the sweepings of a busy man's study, chapters of very varying
length which he clearly found it difficult to arrange in the right order, brusque notes
and memoranda on points which interested the author.
In defense, it may be admitted that Ricardo did not mean to write a book.
These were indeed memoranda written for himself and his friends, published on his friend's
It is very possible, however, that it was precisely Ricardo's obscurantism that accounted
for his success.
For all too many people, laymen and professionals alike, obscurity and bad writing equal profundity.
If they can't understand it and they hear at every hand that so-and-so is a great man
and his theory is the current light, their belief in his profundity will be redoubled.
There are great charms to obscurity.
Moreover, there are particular charms for the adepts who cluster around the great man,
the circle of initiates who claim, probably correctly, that only they can truly understand
his work.
Only they can penetrate the fog caused by the depth of the great man's wisdom.
Schumpeter notes that quickly his circle developed the attitude, so amusing but also, alas, so
melancholy to behold, of children who have been presented with a new toy.
They thought the world of it.
To them it was of incalculable value that only he could fail to appreciate who was too
are too stupid to rise to Ricardian heights.
Its murkiness and difficulty only heightened the enjoyment and pride of the adepts over
their new toy.
Nowadays this effect is considerably heightened by the fact that obscurity gives disciples
and critics more to talk and write about, and thus greatly multiplies the career opportunities
for scholars in the current age of publish or perish.
Another reason for the popularity of Ricardianism was the persistent cadre activity of the indefatigable
James Mill.
One of Mill's important actions was to help found the Political Economy Club in London
in 1821, a club that quickly became, for many years, the center of economic discussion and
learning in Great Britain.
It is characteristic of the early 19th century shift of the locus of economics from Scotland
In Scotland, economic thought had centered in the two great universities of Edinburgh and Glasgow, with influence spread through academic, literary and business circles, and members of social clubs in the two cities.
In England, on the contrary, there was almost no academic economics in the fossilized university courses of the day.
Of the 30 founding members of the Political Economy Club, only one, Thomas Robert Malthus, was an academic,
teaching political economy at the East India Company's College at Haleybury.
The other leading English economists in the club included David Ricardo,
Businessman and financier Thomas Took, 1774-1858, with Colonel Robert Torrens of the Royal Marines chairing the first meeting.
Others were businessmen, publicists and government officials.
A few years later, academic opportunities began to open up.
Mill's Scottish friend and fellow leading Ricardian, John Ramsay McCullough, who had been lecturing
for several years, became Professor of Political Economy in 1828 at the University College
London and joined the Political Economy Club shortly thereafter.
But after four years of teaching, he had to spend the rest of his life as a financial
controller.
The first economics post at Oxford was a chair founded by the banker and evangelist Henry
Drummond in 1825, but the term of the chair was only five years.
The first chair holder was the attorney and important young economist Nassau William Sr.,
1790-1864, son of an Anglican vicar in Berkshire who had studied at Oxford and had joined the
The New King's College London established in the same year as University College, 1828,
as a Tory and Anglican haven to offset its non-denominational neighbor, appointed senior
to its own political economy post in 1831.
But senior was kicked out unceremoniously for publishing a pamphlet urging a reduction
in the budget of the Anglican establishment in Ireland, and he spent the rest of his career
as a real property attorney and government lawyer, with the exception of another drummond
professorship at Oxford in 1847 to 1852.
Cambridge treated economics with such disdain that its only contribution was to have a young
A young lawyer of no distinction in the field, George Prime, teach economics without pay and at unpopular hours.
Prime taught under those conditions for over 40 years from 1816 on, remarkably becoming professor of political economy in 1828.
Apparently, he wrote nothing in economics and contributed to no important discussions.
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
Richard's view in the history of economic thought was that Ricardianism dominated British
thought from the date of Ricardo's principles through Jevin'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 Sidney G. Checkland,
from an anti-Ricardian perspective, bewailed the manner in which the two Scotsmen, James
Mill and McCullough, like Ricardo, the Spanish-Portuguese Jew, expatriates from their native culture,
and therefore presumably alienated from mainstream English life, used brilliant cadre tactics
is 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
Since it lacked popular appeal, the younger McCullough, a charismatic, enormously strong,
booming, burly, Scotch whiskey-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.
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 McCullough 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' 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
Murray 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
Murray's statist poet and essayist, Robert Southey, 1774-1843, who had attacked deflation
after the Napoleonic War, and member of parliament, geologist and authority on volcanoes, George
Paulette Scroop, 1797-1876.
Raising the fallacious cry of underconsumption, Scrope, in his Principles of Political Economy,
1833, charged that any decline in consumption in favor 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.
George Poulet Scroop was originally named George Thompson, son of John Poulet Thompson,
head of a firm of Russian merchants.
He took the name Scroop after marrying an heiress of the Scroop family.
Born in London, Scroop 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 Scroop.
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
Professor 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 labor theory.
Thomas Perenette 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 labor theory of value, whose socialistic implications had been drawn out
during the 1820s by the Ricardian socialists.
At any rate, by 1829 to 1831, there were no adherents of the labor theory of value left
in mainstream British economics.
To Meek, the only exception was McCullough, who in turn had abandoned Ricardo on many
other issues, including the idea of productive versus unproductive labor, the theory of profit
and the theory of class conflict on the market implicit in the Ricardian theory of distribution.
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, points out that upon Ricardo's death
in 1823, James Mill wrote despairingly to McCullough and noted that they were the two
and only genuine disciples of Ricardo in existence, and McCullough 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 LaSalle was later to call the iron law of wages.
Ricardo had adopted the subsistence wage theory taken from the hardcore Malthusian first edition of Malthus' 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
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
and Population, Two Lectures on Population, to which is added a correspondence between
the author and the reverend 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
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' 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.
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 Sr., suffering from excessive piety toward Malthus, lacked the instinct for the
The juggler 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, 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
3. THE THEORY OF RENT
The Ricardian Theory of Rent was effectively demolished by Thomas Perenette Thompson, 1783-1869,
in his pamphlet, The True Theory of Rent, 1826. Thompson weighed in against this fallacious
This capstone to the Ricardian system.
The celebrated theory of rent, Thompson charged, is founded on a fallacy, for demand is the
key to the price of corn and to rent.
The fallacy lies in assuming to be the cause what in reality is only a consequence.
It is the rise in the price of produce that enables and causes inferior land to be brought
into Cultivation, and not the cultivation of inferior land that causes the rise of rent.
Thompson goes on to note in wonder that Ricardo perceived the fallacy in the view that corn
sells for a high price because rent is paid and not vice versa, and yet pressed on to
adopt a similar cost theory of price.
Here Ricardo reversed cause and effect by maintaining that the cultivation of inferior
land causes the price of corn to rise instead of the other way around.
During the same year, Colonel Robert Torrens himself destroyed the Ricardian theory of
rent even more effectively, zeroing in on the crucial fallacy of rent as a differential.
Characteristically, Torrens, who was involved in all the economic controversies of the
day and changed his mind significantly on nearly all of them, delivered his coup de
grâce in the third edition of a work in which he had originally predated Ricardo in the
discovery and championing of the theory of differential rent.
This work was the Essay on the External Trade, originally published in 1815.
But now, Torrens honed in on the critical point that the rent of land, A, does not depend
on its being more fertile or productive than some other piece of land, B, that on the contrary,
the rent on each land stems from its own productivity, period.
In turn, partially determined by the scarcity of that particular land and by the demand
for its product, the existence of a return on a piece of land is by no means dependent
on the existence of inferior lands.
As Torrance puts it, neither the gradations of soil nor the successive applications of
capital to land with decreasing returns are in any way essential to the appearance or
for the Rise of Rents.
If all soils were of one uniform quality, and if land, after having been adequately
stocked, could yield no additional produce, still the rise in the value of raw produce
would cause a portion of the surplus produce of the soil to assume the form of rent.
In the very same year, 1831, that Colonel Torrens was thus pronouncing the death of
of the Ricardian System, the Rev. Richard Jones, 1790-1855, a Cambridge graduate, put
the final boots to the Ricardian theory in his discourse on rent, in his essay on the
distribution of wealth, a Baconian inductivist, historicist and anti-theorist who paradoxically
first succeeded senior as professor of political economy at King's College London and then
When followed Malthus as professor at the East India College of Halleberry, Jones stressed
the error of Ricardo's historical dictum that the most fertile lands are always cultivated
first in every country, which then moved successively to less and less fertile lands.
For Schumpeter and others to dismiss Jones' case as confusing historical fact with an
An Abstract Theoretical Model Misses The Real Point
Fallacious anti-theorist Richard Jones undoubtedly was.
But from his own point of view, David Ricardo was not simply setting up an abstract and
totally unrealistic theoretical model.
Ricardo was interested above all in political applications, and he was deluded enough to
to believe that his model was spewing forth accurate laws of past and future historical
trends.
For Ricardo, inexorable rises in rent, crippling future economic development, were a predictable
empirical consequence of his own theory.
Specific empirical facts cannot give rise to or test theory, but a theoretical law that
Attempts to predict past and future can be validly countered by examining the course of actual history.
Empirical facts can properly be used to refute empirical generalizations.
The various demolitions of Ricardo's theory of rent, especially that of Perenette Thompson, quickly triumphed in the economic literature.
The Thompson critique had been anticipated in the influential journals in the British Critic as early as 1821, and by Nassau W. Senior in the quarterly review in the same year.
By the early 1830s, Thompson's view had triumphed in the journals, including an article by Samuel Mountafort Longfield, the first Irish professor of political economy at Trinity College, Dublin.
By the 1840s, the Ricardian theory of rent was dead in the water and almost beneath discussion.
Apart from McCullough, the only one willing to defend it was the ardent and emotional Ricardian, the poet and writer Thomas de Quincy, 1785-1859.
David Ricardo, as he himself acknowledged, did not originate his differential theory of rent.
It began in 1777 on the publication of an inquiry into the nature of the Corn Laws by the Scottish farmer James Anderson, 1739-1808.
An Aberdeenshire farmer, Anderson founded and edited the weekly Bee and later moved to London, where he edited publications in Agricultural Science and the Arts.
Anderson's theory, however, remained forgotten until independently replicated by three writers
in 1815, Thomas Robert Malthus in his Inquiry into the Nature and Progress of Rent, Sir
Edward West's 1782-1828 Essay on the Application of Capital to Land, and the first edition
and of Torren's Essay on the External Corn Trade. Malthus did not integrate his theory
into anything like the Ricardian system, and furthermore, he was scarcely an opponent of
the landlords or of land rent. To the contrary, Malthus defended the corn laws. On the other
hand, West, an attorney and fellow of University College, Oxford, who later served as Supreme
The interesting question is, what gave rise in a very short period of time, 1815 to 1817,
with such intense concern, or at least attention to, the alleged problems of rising rents.
For apart from the relatively unknown James Anderson, attention to rising rents occurs
within a very few years shortly after the end of the Napoleonic Wars.
The answer was brilliantly supplied by the early 20th century American-Austrian economist
Frank Albert Fetter.
The Napoleonic wars of the first 15 years of the 19th century were marked by high taxation,
blockages of food imports, currency inflation and, consequently, unprecedentedly high prices
for corn in England and, hence, highly inflated agricultural rents.
It is surely no accident, as Fetter notes, that the so-called Ricardian doctrine of rent
was independently formulated by several other writers, West, Malthus, Torrens and others,
between 1813 and 1815, when wheat prices were at their peak.
4.
Colonel Perenette Thompson, Anti-Ricardian Benthamite
We must pause a moment to consider the fascinating character of Colonel Perenette Thompson, an
An ardent Benthamite radical and a champion of free trade and opponent of the Corn Laws.
Thompson, the son of a prosperous merchant and banker from Sussex and member of parliament
for a decade, spent the first part of his adult life in the military, retiring from
active service in 1922 at the age of 39 with the rank of lieutenant.
Despite this relatively low rank, Thompson had been made the first royal governor of
the colony of Sierra Leone in 1808, but got himself recalled quickly by clamoring for
the abolition of the slave trade.
His removal by the Tory-British government over the issue of slavery radicalized young
Thompson, whose education in classical liberalism was further advanced by reading Adam Smith
and Turgeau. After retiring from active service, Thompson was compensated for his low rank in
important work over a long military career by being repeatedly promoted while inactive.
By the time of his death, Thompson had risen to the rank of full general.
Before going into military service, Thompson had graduated from Queens College, Cambridge,
and Ben Made, a fellow of that college.
On retiring from the military life, he joined Bentham's circle of admirers and plunged into
Benthamite utilitarianism and radicalism.
Thompson's first published work appeared in the very first issue of Bentham's own periodical,
The Westminster Review, 1824, his true theory of rent designed to uphold Adam Smith's views
on Rent as Against Ricardo, followed, and the next year, Peronette Thompson published
his well-known Catechism on the Corn Laws, 1827, generally considered the most important
work in the entire anti-corn law literature. Later, Thompson became one of the most effective
members of the Anti-Corn Law League. In 1829, only half a decade since his plunge into politics,
The now Lieutenant Colonel Thomas Perenette Thompson became the sole owner of the Benthamite
Westminster Review and contributed articles to every issue until relinquishing ownership
seven years later.
After being defeated for parliament in 1834, Thompson won election a year later, taking
his stand with George Grote and the philosophic radicals in parliament.
Losing his seat two years later, he ran several times unsuccessfully, serving in Parliament
from 1847 to 1852 and, again, from 1857 to 1859.
Thompson's writings were prolific and in many areas.
At the age of 59, a six-volume collection of his writings to date was published, Exercises
as Political and Others, 1842, and he kept writing pamphlets and newspaper articles on
democratic reform until the day before his death at the age of 86.
In addition to his widespread political and economic concerns, Thompson wrote and published
works on mathematics, the science of acoustics and the theory of musical harmony.
An organ, built on the lines of Thompson's harmonic theory, received honorable mention
at the Great Exhibition of 1851.
Thompson contributed more to economics than his attack on rent.
His first article in the Westminster Review on the instrument of exchange followed Bentham's
own inflationist views by advocating an inconvertible paper currency.
Another equally dubious contribution of Thompson's in the same essay followed up a hint made 10 years before by Malthus.
Malthus, who had been trained in mathematics at Cambridge, had observed in a pamphlet in 1814 that differential calculus might prove useful in the theory of morals, economics, and politics,
since many questions in these disciplines center around the pursuit of maxima and minima.
By the time of the publication of his Principles of Political Economy in 1820, however, Malthus
had wisely grown skeptical of the possibilities of maths in economics as well as in ethics
and politics.
Thompson, however, also trained in mathematics at Cambridge, had no such scruples, and his
The 1824 article opened a fateful door by using the differential calculus in defining a maximum gain.
The perfect benthamite, steeped in looking at maxima of pleasure and minima of pain, had struck a fateful chord.
Pandora's box had been opened.
Thompson's sympathy for mathematical economics, however, did not keep him from denouncing the Smith-Ricardo search for a fixed and invariable measure of value, which he wisely dismissed as a chimera.
Furthermore, in the Westminster Review in 1832, Thompson trenchantly criticized all cost theories of value, pointing out that cost and price almost always differ.
And these differences, he added, are not accidental and ephemeral, as Smith and especially Ricardo assumed, in their focus on the long-run natural price.
On the contrary, these short-run differences are the essence of the dynamic real world.
This perpetual oscillation on both sides of the cost-price, instead of being an inconsiderable accident, is in reality the great agent by which the commercial world is kept in motion.