3. Ricardo is going to be discussing only the latter category--goods that can be produced, and whose exchange value thus depends on cost of production.
B. Distinction between labor to produce and labor to earn the money to purchase.
6. Suppose the labor cost of producing corn doubles:
7. Ricardo is sneaking up on his rent theory--note "land last taken into production." The fact that the amount of corn produced by a given amount of labor varies with the fertility of the marginal land is going to be key to his analysis.
C. Which standard of value is right?
B. In a more advanced society, tracing out the labor used to produce a final good is more complicated, but the logic of the problem is still the same.
C. Going back to the primitive society, Ricardo sketches an equilibrium price argument for why relative prices must be equal to relative amounts of embodied labor.
C. If all capital were circulating, and all had the same production period, then exchangable value would be proportional to labor input.
D. But if that is not the case, then:
4. Example using machinery
5. So far, this gives us different ratios of exchangable value to embedded labor, depending on the capital labor ratio.
7. If wages go up, labor intensive goods rise relative to capital intensive goods. But...
9. But changes in the inputs needed to produce outputs can result in much larger changes in relative prices.
C. Consider a machine that lasts only a year, substitutes for 100 men, and costs £5000.
VII. Changes in price due to changes in the value of money
C. More precisely, suppose three qualities, yielding, with the same inputs of labor and capital, net produce (after supporting the laborers) of 100, 90 and 80 quarters of corn.
D. But there is an intensive margin as well--before the really bad land is cultivated, it becomes worth applying more labor and capital to the good land to get additional output.
E. The increase of rent is a symptom of wealth, not a cause.
H. A reduction in national capital, and consequent reduction in population, would push the margin towards more fertile lands, reducing rent.
B. Improvement such as better plows give us the same output from the land at lower cost in labor (and capital)
C. Note that we are measuring rent as proportion of output, not as exchangable value.
B. With mines of varying fertility
C. If the labor cost of producing gold from marginal mines was always the same, gold would be as nearly invariable a measure of value as is possible. Ricardo will write as if this were true--i.e. use "gold" to mean an imaginary standard having this characteristic.
II. And refers the reader back to Smith.
B. The natural price of goods other than raw produce and labor tends to fall over time
C. The market price of labor, as of other goods, can deviate from its natural price, but tends to conform.
D. Market rate could be above natural rate in an improving society for an indefinite period of time
E. In talking of capital accumulating, one should distinguish between
II. The natural price of labour, measured in food etc., is not fixed
D. In new settlements, this happens--until they get pushed onto worse land.
F. The friends of humanity cannot but wish ... that workers should have luxurious tastes.
F. All of these calculations are done in terms of Ricardo's imaginary gold of fixed value, but the argument does not depend on that.
G. Digression on the poor laws, citing Malthus:
6. If everyone could live comfortably on welfare, the principle of gravitation is not more certain than the tendency of such laws to convert wealth into misery.
5. Note that all of this increase in wages is with technology fixed--output per worker is the same, save that we are moving to worse marginal land, so output of corn per worker on marginal land is less, but ...
B. So the farmer has an interest in keeping rent low
C. Effect on other goods:
D. The same thing would happen if there was an increase in the price of other goods consumed by the laborer--profits would fall.
E. All of this describes equilibrium.
F. Very long term story:
9. So the shift in value is away from profit and into labor and rent--the latter get a larger fraction of the total, and eventually the former starts to fall absolutely as well as relatively.
B. It has been argued by high authority (Smith?) that when capital is shifted into foreign commerce, the result will be to raise the rate of profit in general. But ...
C. The effect of trade is to get us more usefulness for the same value.
D. Profits depend only on wages (measured in value terms!), Prices are independent of wages (rise in wage compensated by drop in profits) but depend on productivity.
D. Gold and silver distribute themselves among countries in such a way as to make profitable in money terms those trades that would be profitable in barter terms.
B. Contrast that to the modern sense.
C. We are interested in two different questions, neither of which is Ricardo's.
E. Second question is incidence--when you impose a tax, who (or what factor) really pays it?
F. Part of the reason for the difference is that Ricardo is much less interested than we are in the effect of incentives.
C. So wages will go up.
B. During the interval between imposing the tax and adjusting the population, workers would suffer.
3. If the reason is increased demand, that is a consequence of high wages--which resulted in the population increase that is increasing the demand.
6. Defense of Ricardo's claim that wages would rise immediately when you tax corn.
C. Raising wages and thus lowering profits discourages accumulation.
D. Because the price of all commodities that contain raw produce has been raised, England will be unable to compete in foreign trade.
II. This assumes we are really taxing economic rent, and not also taxing the profit on the landlowner's investment in buildings etc.
C. The only difference between a tithe and a tax on raw produce is that the tithe is a fixed percent rather than a fixed amount of money per quarter of corn
D. Just like the tax on raw produce, it changes the corn rent but not the money rent.
E. But it does encourage the import of corn, since we buy it with outputs that do not pay such a tax.
F. More generally, taxing one industry and not another results in an inefficient pattern of imports and exports.
IV. Such taxes discourage cultivation--but for the same reason as all taxes.
C. The total value of all money would stay about the same, independent of its quantity, because
D. On the gold used for money, although a large tax was received, nobody would pay it:
E. Quang Ng article: Diamonds are a Government's Best Friend
2. This is Ricardo's argument, except that he is applying it to gold used for money, where there is a much clearer reason why usefulness depends on value not weight.
2. Leaves all prices (in money) the same if money is taxed too (i.e. tax on the profit from mining gold)
3. Ricardo now drops his implicit assumption that all goods are produced with the same labor/capital ratio, and notes that a tax on profits will raise the price of capital intensive goods relative to labor intensive goods.
E. Does a change in the money supply change relative prices?
F. Suppose we tax profits of everyone except the farmer (money untaxed)
G. Suppose we tax everyone's profits.
H. Stock holder has a fixed income, so it matters to him whether you do or don't tax money.
I. In fact, with real money, imported from abroad ...
II. Buchanan attacks Smith's claim that a higher price of provisions leads to higher wages. Ricardo responds:
H. Suppose the tax were simply handed over to employers.
I. But taxes are wastefully spent, so tend ultimately to diminish the capital stock and lower wages.
K. Landlords as such do not pay the tax, but as consumers of labor (hiring servants etc) they do.
N. Ricardo argues that excess burden is impossible, but ... remember he is calculating in value not usefulness.
O. Ricardo points out the argument for taxing the export of goods where you have a national but not individual monoposony.
II. The economics of debt finance
B. Suppose the government had collected the whole £20 million in taxes the year it was spent.
C. When you get the same effect, but with the government doing the borrowing, the logic of the situation is the same.
D. Debt finance of war is a bad idea, because
B. Raw produce is not at a monopoly price
C. It would be at a monopoly price if the land were so thoroughly cultivated that no more could be produced--output on both the extensive and intensive margin <=cost of production.
D. Argument with Mr. Buchanan (and Smith) on whether raw produce is at a monopoly price:
E. Inconsistency between the position Smith and Buchanan take here and their position on the subject of a tax on malt.
6. Say argues that agricultural output is unaffected by tax, so market price is unaffected, so the landlord must pay the tax out of rent.
B. Under current application of the law, the farmer is paying a much larger fraction of his profits than the manufacturer, since
C. In an advancing society (where more land is being taken into production, so the cost of making bad land productive is part of the marginal cost of producing food) poor rates are largely a tax on corn,
D. But in a stationary or retrograde society
B. Riches (aka Smith's use value, roughly our utility) are increased by technological improvements.
D. Smith's labor commanded definition of value doesn't make sense for riches, since increased productivity gives us more riches without more command over labor.
F. Long discussion on Say's inconsistent use of the terms.
B. But Smith attributes the fall of profits to the accumulation of capital and the resulting competition.
C. As Say has shown (still called "Say's Law") production creates its own demand,
D. Smith thinks that merchants invest in foreign trade because there is nothing left to do with their capital at home, but ...
E. What does real world evidence tell us?
4. In a footnote, Ricardo points out that Say is missing the logic of risk premiums, in assuming that because the riskiness of a government loan (in a country whose government cannot be trusted to repay them) requires the government to pay a higher interest rate, that will force up the general interest rate--presumably for safer investments.
B. Someone (not named) argues that a bounty will increase the money price of corn
C. Ricardo replies that in the short run, there is a scarcity of corn, which will not be solved by higher wages,
D. Ricardo disagrees with Smith's analysis of bounties on corn exports (while referring to his "justly celebrated work.")
E. Smith's error is believing that all prices rise or fall in proportion to the price of corn.
F. Smith argued that bounties and tariffs really benefitted manfacturers, but only appeared to benefit landowners.
4. What is wrong with bounties and tariffs is that they cause capital to be misallocated among nations
G. The bad effects of trade restrictions
3. This point is important, since landowners argue, on the authority of Smith, that the should have import duties on corn, to balance the effect onthem of the import duties on manufactured goods.
4. The right solution is not to balance one bad law by adding another, but to repeal the first.
B. Contrast the effect of a fall in the price of corn due to a bounty with the effect of a fall in the value of corn due to producing it with less labor.
C. Suppose we reverse the bounty--tax corn and subsidize manufactured goods.
D. So far we have assumed no foreign trade.
B. Somebody invents a new machine which can do the same work, in either his farm or his manufacture, with much less labor (Ricardo omits this step, but there must be some reason why the capitalist changes from his old pattern of production)
F. Ricardo's conclusion
G. Note that Ricardo does not (here) note the feedback from wages to capital/labor ratio
B. Similarly, a country engaged in war with lots of people employed as soldiers and sailors increases the demand for labor, since ...
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