Perhaps the most equivocal contributors in the debate on policies of public debt and government fiscal policies in the economy are undeniably David Ricardo and Thomas R. Malthus. This paper undertakes to analyse David Ricardo and Thomas Malthus’ debate on public debt policy and the role of government in an economic system. Though they argumentatively differed, they did agree on some views such as the inefficiency of government spending. Ricardo argued for redemption and government restriction whereas in contrast Malthus was against wiping off public debts arguing that doing so would depress aggregate demand in the end. The two scholar’s differences were based on the application of say’s law and this paper will explore their theories and application.
Ricardo was both a politician and a businessperson who embraced argument and controversy. He contributed to economics by numerous writings and speeches regarding public debts, which support his theories of resource allocation and economic growth. Many scholars celebrate him as a brilliant abstract thinker and system builder and his contribution to date still invites debates.
Malthus despite being a close friend of Ricardo was his opponent on policy issues. He was an agrarian and opposed ‘poor laws’ of Ricardo in favour of ‘Corn laws’. He was against redemption of public debts and taxation as a government economic intervention.
Debts redemption implied that there would be more revenues in the economy, which can now be transformed into capital thus stimulating the economy. On the other hand, if there were no redemption funds collected from the public would be transferred abroad therefore contributing negatively to the exchequer. In order to liquidate national debt there is need for great sacrifices but many people end up migrating in order to evade the tax burden. The government has a role to play in the economy. This is done through government fiscal policies to safeguard the poor consumers from exploitation and tax overburden.
Ricardo advocated for debt redemption due to his concern for capital growth and existing economic prosperity. He noted that if we allowed a free market system, resources would be redistributed in the economy thus growth. Any additional capital would therefore imply an increase in demand and supply improving the economy’s GDP prosperity. He observed that investment is preceded by saving which increases our investment capital. Increase in investments will improve the productivity therefore increasing the purchasing power thus firms will be able to buy more factor inputs. Ricardo politically argued that sinking funds were underutilized especially where national and self-interests were in conflict. There was need for political reforms as the “solution for public debts lay generally in the dissemination of good doctrines.”
(Churchman 635) He advocated for emerging services for the poor such as saving banks but also pointed out that due to profit overriding aim of the banks there would be tendencies to speculate therefore need to secure the poor should the banks fail. According to him, the government has a duty to guard against exploitation and educate the public so they could make informed decisions. The two agreed that that government spending was inefficient and unproductive when spent on make work projects but was beneficial if spent on infrastructural projects. Ricardo argued that public debt redemption would have no effect on the level of aggregate demand contrasting Malthus observation but would lead to transfer of assets from taxpayers to public creditors. On Malthus “underconsumptionist” argument, he observed that production of unwanted goods and miscalculation were the causes of stagnation in commerce. On taxation effects on agriculture, he argued that the distress experienced was not because of taxes but due to abundance in production.
Malthus observed that debt redemption would lead to harmful distributional effects, which would lead to acceleration of existing economic distress. He actually viewed the class of public creditors as unproductive consumers (664). According to him given the existing economic situation in England, redemption of debts would lead the society being worse off rather than better off. In his view, it would be a misconception to think property owners or capitalist would be willing to increase their consumption following debt redemption. On the other hand, should they adopt Ricardo views of saving and lending their increased income then the society would end up even more badly off. New distribution of produce would diminish the results of productive labour and as more revenues were converted into capital profits fell. (486) Increased taxation would downsize wealth accumulation inhibiting both domestic and foreign trade. Increase in fixed income receiving public creditors led to possibility of redistribution of purchasing power.
Conclusion
As we have identified, Ricardo and Malthus alternative theories led them to different conclusions regarding public debts and governments role in the economy. Malthus firmly opposed public debt redemption arguing they would lead to depression of aggregate demand. However, Ricardo dismissed his arguments contrasting on the ramification of debt redemption. Ricardo avoided any justification for government spending and argued that it was necessary to impose government restrictions and to minimize public expenditure in order to lessen the tax burden on the public. Despite their differences, they both expressed views of eminent danger following excessive taxation in order to service a debt and need for government restriction.
Works Cited
Ricardo, David. “Three Unpublished letters by David Ricardo,” edited by A. Heertje, in
History
of Political Economy 23:3, (1991). 519-526
Nancy A. Churchmann. David Ricardo on Public Debt. (National Library of Canada ) 1997.print
