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History

The great debate: Who deserves the greater share of profit?

In the wake of the French Revolution, two economists squared off over grain tariffs. One argued greater profits for the aristocracy would trickle down. The other argued profit belonged to the workers.

The great debate: Who deserves the greater share of profit?
Manfredi De Leo
4 min read

In frigid Restoration Europe, as the ancien régime tried to crush the populist tide — as it would be called today — unleashed by the French Revolution, David Ricardo’s shocking work, the Principles of Political Economics, was published in the heart of London.

It was April 19, 1817. “Mr. Ricardo’s system is one of discords. … Its whole tends to the production of hostility among classes and nations,” wrote the American economist Henry Charles Carey in 1848, denouncing Ricardo as the father of communism and his book as “true manual of the demagogue, who seeks power by means of agrarianism, war and plunder.” But how could a liberal rich bourgeois like Ricardo become a bearer of class struggle?

The intimately “subversive” character of the Principles, captured by Carey, resides in the particular explanation that Ricardo proposed of the division of social product among different classes, a formula that represents the distribution of income as a conflict between social classes over the division of a given product.

According to Marx, the “great significance of Ricardo for science” lies in having pushed the analysis beyond superficial appearances to reveal the “actual physiology of the bourgeois society.” On the surface of the economic system, we can see only the prices of goods, which offer us a dull image of the underlying economic relations. In fact, the social classes are contending dimensions of a product whose price varies with the subdivision itself, so it seems possible to imagine that the interests of capitalists, workers and landowners can converge around the common goal of growth, a growth that can satisfy everyone — simultaneously fueling profits, wages and income.

In the ironic words of Marx, “then, if by chance this conflict evolves into a fight, as the end result of this competition between land, capital and labor, while they were fighting on the division, they have totally grown the product value with their rivalry, each of which gets a larger slice, so that their competition itself does not appear like the stimulating expression of their harmony.”

Harmony was the suggestion of the then undisputed theory of value by Adam Smith, echoed by conservative economists like Reverend Malthus, who (then as today) defend the interests of the establishment through a narrative that describes them as general interests rather than special ones: If there is a common good (growth), class conflict appears to be a deleterious element for society as a whole, because it prevents peaceful cooperation between its different components.

At Ricardo’s time, the “establishment” was composed of the big landowners, but a rising capitalist bourgeoisie was gaining more and more economic and political power.

The conflict between these two classes unleashed the scientific debate between Ricardo and Malthus, a debate that led to the drafting of the Principles.

Malthus was waging a battle in defense of duties on grain imports, which would keep the price of the main agricultural products higher (a legacy of the Napoleonic wars), thereby ensuring high returns.

In Malthus’s narrative, needless to say, everyone would have taken advantage of the income from the duties because, the reverend argued, a higher income for the landowners would in turn enrich the whole society.

Ricardo’s works form the spearhead of the reaction to Malthus in the burgeoning capitalist bourgeoisie: When revenue grows with the help of grain prices, profits have to be reduced because the monetary value of wages paid by the capitalists to the laborers must increase as well.

The keystone of Ricardo’s reasoning is the inverse relationship between wages and profits. Since workers consume barely enough for their subsistence, the higher price of agricultural products is entirely transferred onto wages, making them grow proportionately, and therefore profits will receive a smaller share of the product.

This plastic representation of the relationships between social classes reveals the purely political content of the problem, revealing the special interests of landowners in keeping the duties.

Although Ricardo had proved his superiority in the field of ideas, he lost the political battle to Malthus. The duties and other privileges of the English landowner aristocracy endured the attacks of the English capitalist class for another 30 years.

However, Ricardo’s legacy went far beyond his time, even passing beyond the interests of the social class to which the author of Principles belonged. After wrestling power from the landed aristocracy, in fact, the middle class was called into question by the rising proletariat, whose aspirations would be legitimized and pushed by that same theoretical paradigm that had triggered the slaughter of the ancien régime.

In fact, the pages Ricardo wrote 200 years ago opened a gap in the history of economic thought through which the utopias of the so-called Ricardian socialists would pass, intended to break the barricades of ’48 under the blows of repression. Then, the lucid anatomy in Marx’s Capital inspired the Bolsheviks assault on the tsars and finally Piero Sraffa’s critique of political economics. Gramsci’s close friend discovered precisely in Ricardo’s works the roots of a “submerged and forgotten” approach to economics, perhaps because it was a radical alternative to the unified liberal thought.

We can now understand Carey’s fears, according to whom Ricardo’s “works are an arsenal for anarchists and socialists, for all enemies of the bourgeois order.” We ignore the potential of this arsenal whenever we give up interpreting the economy from the point of view of the class conflict that animates our society, out of the pacifying rhetoric of the common good.


Originally published at https://ilmanifesto.it/quando-ricardo-tolse-il-primo-velo-alla-crescita-come-bene-comune/ on 2017-06-03
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