According to Cannan Edward West was the ‘first Ricardian before Ricardo himself’.
He is remembered as one of the co-discoverer with the classical theory of rent, together with Malthus, in 1815.
Much less well known than his 1815 work, though much better written by a more mature writer, was his 1826 Essay on the Price of Corn etc. I have reread it this evening and again am struck by how ahead of his time he was.
Yet this essay was forgotten, with the period in the depression in the price of corn over interest in political economy lagged. JS Mills pamphlet on unsolved problems lay unpublished for a generation. West was a lawyer, was too busy to publish earlier. Becoming a judge in Bombay he died tragically early, spending his lost year on a lost and unfinished treatease on the whole subject of political economy. Let us hope that in some Bombay chest it some day turns up as his 1826 Essay, referring to a follow up work, indicates that West had made remarkable advances to the core concepts of classical economics.
In the introduction to the 1826 Essay he claims priority to certain key concepts of ‘ricardian’ economics. He certainly held to the core surplus view, and that given a fixed real wage prices and profits were determined. But in one key respect he broke with Smith and Ricardo decisively.
West attacked the concept that the demand for labour depended solely on the amount of capital. An error he considered that pervaded almost every page of political economy.
‘ how important it is to distinguish the price of labour from the wages of labour. From the omission of this distinction Mr. Ricardo did not see that wages and profits may increase together; though perhaps the price of labour and profits cannot increase together. The demand for and money-wages of labour may be increased without any increase of the capital of the country….a brisk trade, a demand for our manufactures caused by whatever circumstances, without any preceding increase of capital, sets every hand in motion; whilst the contrary circumstances cause a stagnation of trade without any preceding diminution of capital, and throw many out of employment.’
This is clearly a theory of aggregate demand, many years before JS Mill, and a very modern theory dependent on the real wage – here there was no’classical duality’ criticised by Keynes of treating prices and money separately.
Wests distinction, in book III, between the price of labour and the rate of wages is key. Price of labour is the cost of production, West concedes that Ricardo is right that profit is inverse wages if considered as cost of production, but wrong if considered as rate of wages. West essentially makes two arguments, firstly productivity can go up, induced by technology, the price of labour remains the same but the real wage goes up.
Secondly, and this is where it gets interesting West develops a model, of two sectors, what today we would call basic and luxury goods. His essential argument seems to be that if the price of the basic sector goods falls then the real wage increases, in a monetary economy the circuit of reproduction would recycle this benefit and this refutes the doctrine of a fixed wages fund.
This is remarkable on many levels. It seems to be the model for Marxs Reproduction schemes in volume II of Capital. Perhaps he was intrigued and wanted to complete the model. It also seems to be the inspiration for Sraffas basics/non-basics two sector model. As others have commented on it seems to anticipate some features of modern growth models. West also understood that demand depended not just on money but on credit and the sources of confusion arose from the different functions that coin performs.
Also of great interest is chapter 2. Here is a very clear exposition of the concept of opportunity cost. Wests theory of price is important. He clearly sets out a schedule of demand and explains that price is set at the point along that schedule of the lowest price someone will offer for a given supply. If the amount demanded is less than the cost of production it provides an ‘impulse’ to increase supply etc,
The theory is important because it provides a missing coherent theory of demand and aggregate demand/employment to classical theory, and because it removes the weakest link of the classical model – its iron law of wages. It also helps demonstrate I think that marginal concepts could have been incorporated within the classical surplus model to a greater degree without going down the neoclassical route.