Malthusian 'Physiocracy' and Its Abandonment

Pervading much of Malthus’s discourse is an agricultural bias reflected in the notion of a ‘surplus’ unique to agriculture, a primary feature of canonical Physiocracy. (Paley too expressed ‘physiocratic’ bias.) In the second Essay on

Population, for example, manufacturing income is treated simply as a transfer payment made from income generated on the land:

But manufactures, strictly speaking, are no new production, no new creation, but merely a modification of an old one, and when sold must be paid for out of a revenue already in existence, and consequently the gain of the seller is the loss of the buyer. A revenue is transferred, but not created (Malthus 1803: 433).

Even so, Malthus allows a qualification when confuting the Single Tax doctrine: ‘Admitting, as I shall be disposed to do, that the surplus produce of the land is the fund which pays everything besides the food of the cultivators; yet it seems to be a mistake to suppose that the owners of land are the sole proprietors of this surplus produce’ (ibid.: 440, fn.). In 1803, and in later editions of the Essay, England is represented as the ‘richest’ European county given the magnitude of its surplus agricultural produce; the notion of net national revenue generated solely in agriculture remains implicit in a caution against industry-based development dependent on food imports; and the value of corn exports is said to constitute in its entirety a net addition to national income, whereas from the value of manufacturing exports must be deducted subsistence costs to obtain ‘a clear national profit’ (ibid.: 449).

Regarding Malthus’s famous agricultural protectionism in The Grounds of an Opinion (1815b), Ricardo complained primarily of its rationalisation in terms of ‘the benefits of agriculture over commerce in increasing production’, on the grounds that it clashed with both the scarcity and related diminishing- returns perspectives adopted by Malthus elsewhere (Ricardo to Malthus, 13 February 1815, in Ricardo 1951-1973, volume VI: 178). There is considerable justification for Ricardo’s charge. For the loss of agricultural capital and output is said in the Grounds to be, pound for pound, more damaging than a loss in other sectors, a reflection of the ‘additional value’ peculiar to the agricultural sector (Malthus 1815b: 30-36). This additional value would be erased by a free corn trade—Malthus here recommends his Rent pamphlet— to the national detriment from the perspective of both consumption power and tax revenue: ‘And this additional value is not a mere benefit to a particular individual, or set of individuals, but affords the most steady home demand for the manufactures of the country, the most effective fund for its financial support, and the largest disposable force for its army and navy’ (ibid.: 35). Malthus in this context allowed that ‘the last additions to the agricultural produce in an improving country are not attended with a large proportion of rent’, yet concluded that ‘in all cases the importation of foreign corn must fail to answer nationally, if it is not so much cheaper than the corn that can be grown at home, as to equal both the profits and the rent of the grain which it displaces’ (ibid.: 35-36). In order to justify free trade in corn, the savings in resources must be sufficient to compensate for the loss of rent.

Malthus conceded in the 1817 Essay on Population that with a free corn trade the absolute size and rate of growth of population would be greater than with a primary reliance on domestic agriculture, but maintained that the cost would be too high, namely

a greater degree of uncertainty in its supplies of corn, greater fluctuations in the wages of labour, greater unhealthiness and immorality owing to a larger proportion of the population being employed in manufactories, and a greater chance of long and depressing retrograde movements occasioned by the natural progress of those countries from which corn had been imported (Malthus 1817, volume II: 495-496).

For all that, the physiocratic dimension was by 1817 already under threat and with it the protectionist implication. Thus, we find a new emphasis on industry-based growth as characteristic of the later stages of economic development, a tendency reflecting growing land scarcity and an ‘increasing taste for conveniences and luxuries’ which tended to ‘direct the greatest part of new capital to commerce and manufactures’ (Malthus 1817, volume III: 6). Also, the Principles allows that with prudential population control a major part of the national surplus (whatever its ultimate source) takes the form of wages, even the wages of industrial and service labour:

Those who live upon the wages of labour, unproductive as well as productive [1836: including of course those engaged in personal services,] receive and expend much the greater part of the annual produce, pay a very considerable sum in taxes for the maintenance of the government, and form by far the largest portion of its physical force (1820: 423, 1836: 368).

This allowance for improved working-class living conditions (notwithstanding a natural tendency to industry-based growth) and expenditure out of wages undermines the case for agricultural protection to assure balanced growth on the grounds that landlord’s rent constituted a prime source of demand.

All this implies a case for a free corn trade. Indeed, in the mid-1820s Malthus gave his support to the government’s new free-trade policy as consistent with a ‘naturally’ growing sectoral imbalance favouring manufactures. Thus, a note in the 1826 edition of the Essay declares that, notwithstanding the greater stability of prices under protection, Malthus was on balance opposed to the policy because of its ‘unsocial tendency’—the damage caused to the ‘interests of the commercial world in general’ (Malthus 1826, volume II: 209, fn.). The government was ‘most laudably setting an example of a more liberal system of commercial policy’, and foreign nations should not be allowed ‘so marked an exception as our present corn-laws to cast in our teeth’ (ibid.). Malthus does not here simply affirm that, from a cosmopolitan viewpoint, free trade in corn was desirable, but proposes that, given the new British commercial policy, global free trade involving the full range of products was no longer a pipe dream—indeed, liberalisation of corn imports would provide a potent weapon for its achievement.

In his 1824 Quarterly Review article on Ricardian economics, Malthus had already allowed that expansion of foreign markets for British manufactures had mitigated the worst effects of the post-war depression by drawing labour from the agricultural sector, such expansion in part ascribed to the ‘improved views of our government in commercial legislation’ (Malthus 1824: 324). The empirical significance of manufactures from the perspective of aggregate activity reinforces the case for free trade since expanded markets could scarcely be relied upon with agriculture ‘so marked an exception’ to a general free- t rade programme. The protectionist case of 1815 had turned partly on the unrealistically large expansions of manufacturing required to absorb even the agricultural workers who were unemployed in 1815. By the mid-1820s, the manufacturing sector was proving itself adequate in that respect.

We now recall Malthus’s original affirmation of 1815 in Grounds of an Opinion that, pound for pound, the loss of agricultural capital and output is more damaging than a similar loss in other sectors from the perspective of both consumption power and tax revenue. The emphasis in 1824 on expenditure derived from export sales and the rejection of pro-agricultural intervention implies a weakening of the case for ‘unproductive’ consumption by landlords and their dependents.

Malthus’s renunciation of support for balanced growth and self-sufficiency in food in favour of industry-based growth amounts to the Ricardian position precisely. This reconciliation with Ricardo establishes the validity of perceiving a well-defined ‘classical school’, and incidentally puts the corn-model device into the shade. The episode illustrates strikingly, perhaps uniquely, the effects of empirical experience, particularly changing industry structure, on intellectual effort, Malthus personifying the transition between the agricultural and industrial eras. If one feature must be singled out as defining Malthus’s significance for economics, this would be my choice.