On a `New Interpretation' of Ricardo's Early Treatment of Profitability

Abstract

In a recent paper published in thisJOURNAL (i 984) Dr Terry Peach has gravely misrepresented my analysis of Ricardo's early treatment of profitability in The Economics of David Ricardo (henceforth EDR, I979). Peach asserts that on my account 'Ricardo's treatment must be characterised in terms of the manipulation of money variables; that is in terms of the relationship between money wages (which may be influenced by changes in the price of corn, although this is only one possibility), prices and profits' (I984, p. 734), and he refers to 'Hollander's belief that Ricardo adopted an undifferentiated money variables approach to the analysis of both the agricultural and manufacturing sectors' (p. 74in.). In making these global assertions Peach distorts my position. For I have always emphasised that Ricardo proceeded in his early writings by distinguishing the agricultural and the manufacturing sectors. Thus, conspicuously, in discussing the Essay on Profits ( I 8 I 5), I refer 'to his well-known model, relating to the agricultural sector' in which corn is used as nume'raire (I979, p. 136-7), and reiterate that 'it seems to have been Ricardo's intention to apply the model specifically to the agricultural sector' (p. I 38). And I could not have been more explicit that 'there are no price calculations in the table of the Essay' (p. I62). I have sought, however, to demonstrate that when Ricardo turned to analyse the economy-wide return on capital he worked within a moneyvariables framework. The agricultural model served an introductory purpose only; in particular, the material rate does not determine the general rate in the manner perceived by Sraffa. I have also sought to show how the argument matured over time culminating in the Principles, for in the early accounts the ' general' theory involving the impact on profits of upward pressure on money wages reflecting diminishing agricultural returns is not yet fully developed