Chapter 4: The Gloomy Presentiments

• Adam Smith founded Classical Economics (optimistic). Ironically, chief spokesmen of this school are pessimistic:
• David Ricardo
• successful Jewish stockbroker, reached financial independence at age 26
• widely popular, "the man who educated the Commons"
• a practical man in financial matters, but a theorist with dry, mechanistic view of society
  
• Thomas Malthus
  
• Reverend with modest income
• continually criticized, "the best abused man of his age"
• academical researcher, but practical in economic views
  

• Disagrees with each other fiercely on economic views (exception: danger of overpopulation), but personally on good terms
• David Ricardo (1772-1823)
• background that led to Ricardo's views:
• 40 years after Wealth of Nations, England dominated by
• rising capitalists
• conservative aristocracy: the landlords
• Capitalists want low grain prices
• because capitalists must pay at least subsistence wage to workers
• thus welcomed cheap imported wheat & corn
• Landlords want high grain prices
• resented imports, because lower profits from their own grains
• landlords held majority in Parliament --> pass Corn Laws
• impose duties on imported grains, kept cheap import out of England
  
• was not repealed until 30 years later
• Ricardo's view on society: a bitter competition (instead of Smith's balanced, harmonious society)
• Workers:
• automatons, only human expression was indulgence in sex
• doomed to no more than subsistence wages, because:
  
• unable to raise living standards when wages rose (because produced more children)
• high birth rate, thus increasing labor supply
• labor supply exceeds demand, wages couldn't rise
• Capitalists:
• at fierce competition with other capitalists, reducing profits
• profits eaten by landlords, because:
  
• profits depended on wages
• high grain price raised wages, thus lower profits
• Landlords:
• the "villains" (as seen by Ricardo)
• unique beneficiary, gained at everyone else's expense
• landlords' income: the rent
• not held in line by either competition or power of population
  
• a very special kind of return, not just the price for usage of soil (c.f. interest=price of capital, wages=price of labor)
  
• originates from differences in cost between productive land & less-productive land
• 
  
• Thomas Malthus (1776-1834)

Terms:

• The Iron Law of Wages (David Ricardo)
  
• Labor's wages remain at subsistence level (aka natural price), because of worker's tendency to produce more children
• Malthusian Doctrine
• Population, unless controlled, grows at higher rate than means of subsistence, results in starvation
• Neo-Malthusianism: a name originally denoting birth control