Page 145.

Mr. Ricardo contends that tithes, by raising the price of agricultural produce will fall wholly on the consumer. They will be, as it were, an addition to the cost of production. In this he falls into an error which occurs frequently in his work, namely, that of supposing that the cost of production influences the price without diminishing the supply. As if men first determined what they should consume, and then had the goods made according to order, and paid the cost of production, because on such terms only would the goods be produced for them. He says, “goods rise, because otherwise the requisite supply would not be afforded.” The fact is that goods rise because the producers limit the supply, as well as they can calculate, to such an amount as they hope to dispose of at a remunerating price, and when they miscalculate and produce too much, prices fall, notwithstanding the cost of production, and the producers suffer a loss, and are compelled not to produce such an abundant supply. This is most evident in the very case of agricultural produce, where the price varies from year to year, and is never fixed as the average. In an abundant season prices fall, and the consumer does not pay more in order to encourage the producer on future occasions to raise the requisite supply; and in a season of scarcity prices rise above the cost of production.

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The effect of tithes, supposing the population to be unaffected, and putting importation and exportation out of the question, would be, by raising prices to tax the consumer, and by diminishing the usual consumption and production to reduce rents.

Mr. Ricardo makes a distinction between high prices as caused by a scarcity, and as caused by a great cost of production. I cannot recognise the propriety of such a distinction. An increase of price can only be produced by a diminution in the supply or an increased intensity of demand. The latter may be produced by the increased wealth of the population, the former by an increased cost of production. But in this case it is the diminution of the supply, not the increased cost of production, that increased the prices. If no change had taken place in the cost of production, the same diminution of supply would be necessary and sufficient to produce precisely the same increase of price.

The same opinion, that an increase in the cost of production of an article will raise its price without diminishing its consumption, combined with some confusion in reasoning, led Mr. Ricardo to assert that a tax upon the profits of the farmer would be advantageous to the landlord.