David Ricardo on Public Debt (review)

As Nancy Churchman correctly observes, the classical economists' writings on public finance (covering government expenditure, taxation, and public debt) have received little attention compared with those on value, distribution, and growth, despite their clear recognition of its importance. Thus, this book, the first comprehensive account of Ricardo's views on public debt, should be warmly welcomed by historians of economic thought. Ricardo scholars in particular will appreciate Churchman's scrutiny of all the available primary sources in which he discussed the subject.

Churchman adopts Samuel Hollander's interpretation of Ricardo's allocation analysis and the "new view" of his growth theory. She assumes that, in Ricardo's system, a natural equilibrium is automatically attained through the supply-demand balance mechanism and the free movement of resources, and that wages always exceed subsistence levels until the economy ceases growing and reaches a stationary state. She then argues that these assumptions consistently explain Ricardo's vehement opposition to government profligacy and public debt, as well as his enthusiastic support for debt redemption. However, she might have demonstrated more clearly how other interpretations, for example, Joseph Schumpeter's and Piero Sraffa's interpretations of Ricardo's allocation analysis, and the "traditional view" of his growth theory, would have failed to produce the same conclusions.

With respect to Ricardo's ideas on debt redemption, Churchman puts forward two significant hypotheses. First, although Ricardo admitted the possibility of short-run deficiencies in demand, he obdurately refused to accept Malthus's theory of general glut and his argument that debt redemption would aggravate the depression that followed the Napoleonic wars. This was because Ricardo feared that, if he gave in on any point of Malthus's theory of general glut, such a concession would be construed as supporting government profligacy. Second, although Ricardo believed in the practicability of his capital levy scheme, and prepared in manuscript a concrete plan for carrying it out, he did not campaign for the plan because of its political inexpediency. If these hypotheses are generally accepted, they will force a revision of the popular image of Ricardo as a naive theorist who cared neither for reality nor politics.

It is possible, however, to find alternative grounds for Ricardo's ideas. For instance, one might argue that he rejected Malthus's argument against debt redemption not because he feared being regarded as a supporter of government profligacy, but because he was convinced of the truth of the Law of Markets. Again, one might think Ricardo did not publicize his plan for a capital levy, not because it was politically inexpedient, but because it contained unresolved practical problems. The proper level for the redemption price, the classes of professionals to be exempted, how property would be assessed, and the capital flight it could be expected to provoke were all issues that needed more examination.

Thus, further study of Ricardo's views on public finance is still required before definitive verdicts are possible, either as to Ricardo's real intentions or the assumptions about his allocation and growth theories which best explain his discussions of public debt. Moreover, in order to clarify what was distinctive about Ricardo's views, they must be compared more fully with those of other classical economists such as Smith, Bentham, McCulloch, and J. S. Mill, as well as Malthus. Nonetheless, Churchman's book is an important contribution to this project.