Page:Encyclopædia Britannica, Ninth Edition, v. 20.djvu/554

534 RICARDO Both parts of this proposition are probably true ; but he does not establish the first in a very satisfactory manner. In the Proposals for an Economical and Secure Currency (1816) he first disposes of the chimera of a currency without a specific standard, and pronounces in favour of a single metal, with a preference for silver, as the standard. He then puts forward a scheme which had been already briefly indicated in the appendix to the 4th edition (1811) of his High Price of Bullion. This was that the bank should be obliged to deliver on demand, not coin, but uncoined bullion or gold standard bars, in exchange for its notes, whenever the notes presented together for payment reached a moderate fixed amount. The con- sequence would be that, all the smaller payments being made in the cheap medium, paper, the country would enjoy the profit derivable from the metallic currency used as a capital ; the wear of the coinage, too, would be pre- vented, and a saving thus effected. By this method the public would secure itself against any variations in the value of the currency beyond those to which the standard itself is necessarily subject ; and, at the same time, the circulation would be carried on in the least expensive way. Thus, whilst the use of the precious metals as the medium of exchange was, in the earlier stages of social life, one of the most important steps towards the improvement of commerce and the advancement of civilization, it is pro- posed to us, and on grounds which it is difficult to gain- say, to banish them once more from such employment in almost all the internal transactions of a country. A kindred revolution, tending to the further elimination of metallic money, Jevons has spoken of as "a return to barter"; but that expression is misleading, for in the modern system of settlement by writing off liabilities against each other a metallic standard is always supposed, and lies at the basis of every transaction, whereas in the primitive method of dealing commodities were directly compared. Ricardo's plan was in operation for some time, but was then given up on the ground, urged by the bank, of the frequent forgery of one pound notes, and the consequent necessity of replacing them with coin a very insufficient reason, as experience demonstrates, though a good argument in favour of such an improved manu- facture of notes as would effectually defeat fraudulent imi- tation. In a later tract (Plan for a National Bank) Ricardo proposes that one pound notes should be confined to the country districts. The general plan has been objected to on the ground that it would not provide for a sufficient metallic reserve to meet sudden emergencies arising from the necessity of foreign payments. Ricardo's chief work, Principles of Political Economy and Taxation, appeared in 1817. A full account of the general theory expounded in this treatise has been given under POLITICAL ECONOMY ; a very brief statement must here suffice. The fundamental doctrine is that, on the hypothesis of free competition, exchange value is deter- mined by the labour expended in production, a proposi- tion not new, nor, except with considerable limitation and explanation, true, and of little practical use, as " amount of labour " is a vague expression, and the thing intended is incapable of exact estimation. Ricardo's theory of dis- tribution has been briefly enunciated as follows: "(1) the demand for food determines the margin of cultivation ; (2) this margin determines rent ; (3) the amount necessary to maintain the labourer determines wages ; (4) the dif- ference between the amount produced by a given quantity of labour at the margin and the wages of that labour determines profit." These theorems are too absolutely stated, and require much modification to adapt them to real life. His theory of foreign trade has been em- bodied in the two propositions "(1) international values are not determined in the same way as domestic values ; (2) the medium of exchange is distributed so as to bring trade to the condition it would be in if it were conducted by barter." His views on currency and banking will be gathered from the present article. A considerable portion of the work is devoted to a study of taxation, which requires to be considered as a part of the problem of distribution. A tax is not always paid by those on whom it is imposed; it is therefore necessary to determine the ultimate, as distinguished from the immediate, incidence of every form of taxation. Smith had already dealt with this question ; Ricardo develops and criticizes his results. The conclusions at which he arrives are deduced from the theory of rent and from the assumptions of a uniform rate of profits and of a rate of wages coincident with the necessary subsistence of the labourer. They are in the main as follows : a tax on raw produce falls on the consumer, but will also diminish profits ; a tax on rents on the landlord ; taxes on houses will be divided between the occupier and the ground land- lord ; taxes on profits will be paid by the consumer, end taxes on wages by the capitalist. These propositions of course participate in the infirmity of the premises from which they are deduced, or must at least be taken with limitations corresponding to those to which the premises are subject. Ricardo adopts and even extols as a " golden maxim " the shallow dictum of Say, that " the very best of all plans of finance is to spend little, and the best of all taxes is that which is of least amount." In 1819 Ricardo, having retired from business and become a landed proprietor, entered parliament as member for Portarlington. He was at first diffident and embarrassed in speaking, but gradually overcame these difficulties, and was heard with much attention and deference, especially when he addressed the house on economic questions. He probably contributed in a considerable degree to bringing about the change of opinion on the question of free trade which ultimately led to the legislation of Sir Robert Peel on that subject. In 1820 he contributed to the supplement of the Ency- clopaedia Bntannica (6th ed.) an Essay on the Funding System. In this, besides giving an historical account (founded on Dr Robert Hamilton's valuable work On the National Debt, 1813, 3d ed., 1818) of the several succes- sive forms of the sinking fund, he urges that nations should defray their expenses, whether ordinary or extra- ordinary, at the time when they are incurred, instead of providing for them by loans ; and, not believing that the system of a sinking fund would ever be consistently and perseveringly carried out, he maintains that the national debt should be paid off by a tax on property an operation which he thought might be completed in two or three years during peace. Thus, by a single effort we might, he says, get rid of those great sources of demoralization, the customs and the excise, and our commerce would be freed from " all the vexatious delays and interruptions which our present artificial system imposes upon it." In 1822 he published a tract On Protection to Agricul- ture, which is an able application to controversy of the general principles laid down in his systematic work. Its arguments and conclusions are therefore subject to the same limitations which those fundamental principles re- quire. He does not advocate an absolutely free importa- tion of corn, but proposes, in consideration of the special burdens on agriculture, to impose on the foreign commodity a duty equivalent to the exclusive taxes imposed on home growers, as well as to allow a drawback on exportation equal to the duty. The only point of much interest in the tract, apart from the question of protection, is the assertion of the doctrine that a high rate of interest is