James Pennington or James Mill: an early correction of Ricardo

«The Quarterly journal of economics», novembre 1929, pp. 164-171.

In the admirable Introduction to the new edition of Tooke and Newmarch’s History of Prices, Professor Gregory has justly emphasized the contributions to the monetary doctrines made by James Pennington, who, through the memoranda and letters sent to Tooke and Torrens, must be deemed the originator of the modern theories of the nature of bank deposits. As Professor Gregory says, the object of his contributions was to “show that the book credits of a London banker and the promissory notes of a country banker are essentially the same thing; that they are different forms of the same credit, and that they are employed to perform the same functions” (Introduction, p. ii). I venture to note in passing that, before Gregory, Professor Achille Loria had already, as early as 1890, claimed for Pennington priority in discovery of the influence of deposits on circulation in his Studi sul valore della moneta which are, perhaps, the richest extant mine from which everything relevant to past monetary doctrines can be dug out.

The present note is, however, concerned with another aspect of the scientific achievements of Pennington. I wish to put a question: Is Pennington entitled also to be deemed the father of an important correction introduced by James Mill into his treatment of the theory of international trade?

So far as I am able, with the limited stock of books at my disposal, to ascertain the facts, they are as follows.

John Stuart Mill recognized in 1862 the ungroundedness of the opinion, entertained by him in 1844, when he published the Essays on some Unsettled Questions, that Ricardo was the sole author of the doctrine of the nature of the benefit which a country derives from foreign trade. “Colonel Torrens”, he wrote, “by the republication of one of his early writings, The Economists Refuted, has established at least a joint claim with Mr. Ricardo to the origination of the doctrine, and an exclusive one to its earliest publication.” That J.S. Mill was wrong is evident from the fact that in The Economists Refuted (1808) not a word is said on the theory of comparative costs. Chapter V of that tract is a brilliant and sometimes suggestive illustration of the advantages of the international division of labor; the more suggestive, in that he first noticed what Ricardo afterwards overlooked, that the advantage of international division of labor and trade is divided between both countries, in a variable proportion[i]. But however striking may be Torrens’ remarks about the expectation that international exchanges will occasion increased production, and, by expanded dimensions, increase the productivity of old industries, nothing is contained in them relative to the theory of comparative costs.

The true claim of Torrens to priority on this last score is found in An Essay on the Corn Trade, 1815, where, as Professor Seligman pointed out (“On some Neglected British Economists,” in the Economic Journal, 1903, p. 344), the theory of comparative costs is stated in unmistakable terms, substantially not different from Ricardo’s in the famous Chapter 7 of the Principles (1817). Whether Ricardo was indebted to Torrens or Torrens to Ricardo we may well doubt, after the balanced judgment by Dr. James Bonar (in letters of David Ricardo to T.R. Malthus, Oxford, 1887, p. 112) and the detailed discussion by Professor Hollander (in David Ricardo, a Centenary Estimate, Baltimore, 1910, pp. 90/96). From Ricardo the theory of comparative costs passed on to his friends; and in the first edition of the Elements of Political In transmitting the above note by Professor Piero Sraffa, I beg leave to plead guilty to having fallen into the usual trap, from which I would earnestly warn all students, that of believing in quotations made by big men. In the present case, the big man, who made the bad interpretation, was John Stuart Mill. I am at the same time happy that the query should have elicited the present, probably final, answer from Sraffa. The points proved by Sraffa beyond doubt are as follows.

• 1) The error (for it was a true error, and not merely an oversight, as it would have been if made by Ricardo) was of James Mill in 1821 (confirmed in 1824) and not of Ricardo.
• 2) The error was removed by him in 1826.
• 3) John Stuart Mill in 1844 claimed for his father the honor of having first corrected the error.
• 4) On second thought, long afterwards, while writing in 1861 a part of his Autobiography, he ascribed to himself and to Graham the merit of having suggested to his father, at some time between 1825 and 1826, not indeed precisely the correction, but some alteration to his treatment of international values; on examination of the text the alteration cannot be other than the correction.
• 5) In the meantime, in 1857, Colonel Torrens ascribed the merit of the correction to Pennington, a vindication which Sraffa thinks invalid, because the only written trace of it appears in a pamphlet published in 1840, in which Pennington did not take notice of the correction already made by James Mill in 1826.

We have thus on the one hand certain statements by J.S. Mill, some mistaken (about Ricardo) and some contradictory (1844 and 1867); and on the other hand a belated (1840) but candid criticism by Pennington. It may be that the error was detected independently by several of the keen economists of that fruitful epoch, and that it would have been forgotten but for the mistaken zeal of the son to shift the accidental error of the father on other seemingly more capable shoulders.