DAVID RICARDO (18 April 1772 – 11 September 1823) was a British political economist . He was one of the most influential of the classical economists , along with Thomas Malthus , Adam Smith , and James Mill .
* 1 Personal life * 2 Parliamentary record * 3 Death and legacy
* 4 Ideas
* 4.1 Value theory * 4.2 Rent * 4.3 Ricardo\'s theories of wages and profits
* 4.4 Comparative advantage
* 4.4.1 Criticism * 4.4.2 Protectionism
* 5 Criticism of the Ricardian theory of trade * 6 Ricardian equivalence
* 7 Influence and intellectual legacy
* 7.1 Ricardian socialists * 7.2 Georgists
* 7.3 Neo-Ricardians
* 7.3.1 Neo-Ricardian trade theory * 7.3.2 Evolutionary growth theory * 7.3.3 Contemporary theories * 7.3.4 Unequal exchange
* 8 Publications
* 9 References
* 9.1 Notes * 9.2 Bibliography
* 10 External links
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Born in London, England, Ricardo was the third of 17 children of a Sephardic Jewish family of Portuguese origin who had recently relocated from the Dutch Republic . His father, Abraham Ricardo, was a successful stockbroker . He began working with his father at the age of 14. At age 21, Ricardo eloped with a Quaker , Priscilla Anne Wilkinson, and, against his father's wishes, converted to the Unitarian faith. This religious difference resulted in estrangement from his family, and he was led to adopt a position of independence. His father disowned him and his mother apparently never spoke to him again.
Following this estrangement he went into business for himself with the support of Lubbocks and Forster, an eminent banking house. He made the bulk of his fortune as a result of speculation on the outcome of the Battle of Waterloo . Prior to the battle, Ricardo posted an observer to convey early results of the outcome. He then deliberately created the mistaken impression the French had won by initially openly selling British securities. A market panic ensued. Following this panic he moved to buy British securities at a steep discount. _The Sunday Times_ reported in Ricardo’s obituary, published on 14 September 1823, that during the Battle of Waterloo Ricardo "netted upwards of a million sterling", a huge sum at the time. He immediately retired, his position on the floor no longer tenable, and subsequently purchased Gatcombe Park , an estate in Gloucestershire , now owned by Princess Anne, the Princess Royal and retired to the country. He was appointed High Sheriff of Gloucestershire for 1818–19.
In August 1818 he bought Lord Portarlington’s seat in Parliament for £4,000, as part of the terms of a loan of £25,000. His record in Parliament was that of an earnest reformer. He held the seat until his death four years later.
Ricardo was a close friend of James Mill . Other notable friends included Jeremy Bentham and Thomas Malthus , with whom Ricardo had a considerable debate (in correspondence) over such things as the role of landowners in a society. He also was a member of Malthus' Political Economy Club , and a member of the King of Clubs. He was one of the original members of The Geological Society . His sister was author Sarah Ricardo-Porter (e.g., _Conversations in Arithmetic_).
He voted with opposition in support of the liberal movements in Naples , 21 Feb., and Sicily, 21 June, and for inquiry into the administration of justice in Tobago , 6 June. He divided for repeal of the Blasphemous and Seditious Libels Act , 8 May, inquiry into the Peterloo massacre , 16 May, and abolition of the death penalty for forgery, 25 May, 4 June 1821.
He adamantly supported the implementation of free trade. He voted against renewal of the sugar duties, 9 Feb., and objected to the higher duty on East as opposed to West Indian produce, 4 May 1821. He opposed the timber duties. He voted silently for parliamentary reform, 25 Apr., 3 June, and spoke in its favour at the Westminster anniversary reform dinner, 23 May 1822. He again voted for criminal law reform, 4 June.
His friend John Louis Mallett commented: " … he meets you upon every subject that he has studied with a mind made up, and opinions in the nature of mathematical truths. He spoke of parliamentary reform and ballot as a man who would bring such things about, and destroy the existing system tomorrow, if it were in his power, and without the slightest doubt on the result … It is this very quality of the man’s mind, his entire disregard of experience and practice, which makes me doubtful of his opinions on political economy."
DEATH AND LEGACY
Ten years after retiring and four years after entering Parliament Ricardo died from an infection of the middle ear that spread into the brain and induced septicaemia . He was 51.
He had eight children, including three sons, of whom Osman Ricardo (1795–1881; MP for Worcester 1847–1865) and another David Ricardo (1803–1864, MP for Stroud 1832–1833), became Members of Parliament, while the third, Mortimer Ricardo, served as an officer in the Life Guards and was a deputy lieutenant for Oxfordshire .
Ricardo became interested in economics after reading Adam Smith 's _ The Wealth of Nations _ in 1799. He wrote his first economics article at age 37, firstly in The Morning Chronicle advocating reduction in the note-issuing of the Bank of England and then publishing _"The High Price of Bullion, a Proof of the Depreciation of Bank Notes"_ in 1810.
He was also an abolitionist , speaking at a meeting of the Court of the East India Company in March 1823, where he said he regarded slavery as a stain on the character of the nation. His sister, Hanna, had married David Samuda (1776–1824) who came from a slave-owning family with a substantial number of slaves in Jamaica .
Ricardo's most famous work is his _Principles of Political Economy and Taxation _ (1817). He advanced a labor theory of value :
The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour.
Ricardo's note to Section VI:
Mr. Malthus appears to think that it is a part of my doctrine, that the cost and value of a thing be the same;—it is, if he means by cost, "cost of production" including profit.
Main article: Law of rent
Ricardo is responsible for developing theories of rent, wages, and profits. He defined rent as "the difference between the produce obtained by the employment of two equal quantities of capital and labor." Ricardo believed that the process of economic development, which increased land utilization and eventually led to the cultivation of poorer land, principally benefited landowners. According to Ricardo, such premium over "real social value" that is reaped due to ownership constitutes value to an individual but is at best a paper monetary return to "society". The portion of such purely individual benefit that accrues to scarce resources Ricardo labels "rent".
RICARDO\'S THEORIES OF WAGES AND PROFITS
In his _Theory of Profit_, Ricardo stated that as real wages increase, real profits decrease because the revenue from the sale of manufactured goods is split between profits and wages. He said in his _Essay on Profits_, "Profits depend on high or low wages, wages on the price of necessaries, and the price of necessaries chiefly on the price of food."
Between 1500 and 1750 most economists advocated Mercantilism which promoted the idea of international trade for the purpose of earning bullion by running a trade surplus with other countries. Ricardo challenged the idea that the purpose of trade was merely to accumulate gold or silver. With "comparative advantage" Ricardo argued in favour of industry specialisation and free trade . He suggested that industry specialization combined with free international trade always produces positive results. This theory expanded on the concept of absolute advantage .
Ricardo suggested that there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart and that a nation should concentrate resources only in industries where it has a comparative advantage, that is in those industries in which it has the greatest competitive edge. Ricardo suggested that national industries which were, in fact, profitable and internationally competitive should be jettisoned in favour of the most competitive industries, the assumption being that subsequent economic growth would more than offset any economic dislocation which would result from closing profitable and competitive national industries.
Ricardo attempted to prove theoretically that international trade is always beneficial. Paul Samuelson called the numbers used in Ricardo's example dealing with trade between England and Portugal the "four magic numbers". "In spite of the fact that the Portuguese could produce both cloth and wine with less amount of labor, Ricardo suggested that both countries would benefit from trade with each other.
As Joan Robinson pointed out following the opening of free trade with England, Portugal endured centuries of economic underdevelopment: "the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution". Robinson argued that Ricardo's example required that economies were in static equilibrium positions with full employment and that there could not be a trade deficit or a trade surplus. These conditions, she wrote, were not relevant to the real world. She also argued that Ricardo's math did not take into account that some countries may be at different levels of development and that this raised the prospect of 'unequal exchange' which might hamper a country's development, as we saw in the case of Portugal.
Like Adam Smith, Ricardo was an opponent of protectionism for national economies, especially for agriculture. He believed that the British " Corn Laws "—tariffs on agricultural products—ensured that less-productive domestic land would be harvested and rents would be driven up (Case ">
Ricardo's writings fascinated a number of early socialists in the 1820s, who thought his value theory had radical implications. They argued that, in view of labor theory of value, labor produces the entire product, and the profits capitalists get are a result of exploitations of workers. These include Thomas Hodgskin , William Thompson , John Francis Bray , and Percy Ravenstone .
Georgists believe that rent, in the sense that Ricardo used, belongs to the community as a whole. Henry George was greatly influenced by Ricardo, and often cited him, including in his most famous work, Progress and Poverty from 1879. In the preface to the fourth edition, he wrote: _"What I have done in this book, if I have correctly solved the great problem I have sought to investigate, is, to unite the truth perceived by the school of Smith and Ricardo to the truth perceived by the school of Proudhon and Lasalle; to show that laissez faire (in its full true meaning) opens the way to a realization of the noble dreams of socialism; to identify social law with moral law, and to disprove ideas which in the minds of many cloud grand and elevating perceptions."_
After the rise of the 'neoclassical' school, Ricardo's influence declined temporarily. It was Piero Sraffa , the editor of the Collected Works of David Ricardo and the author of seminal _Production of Commodities by Means of Commodities_, who resurrected Ricardo as the originator of another strand of economics thought, which was effaced with the arrival of the neoclassical school. The new interpretation of Ricardo and Sraffa's criticism against the marginal theory of value gave rise to a new school, now named neo-Ricardian or Sraffian school. Major contributors to this school includes Luigi Pasinetti (1930–), Pierangelo Garegnani (1930–2011), Ian Steedman (1941–), Geoffrey Harcourt (1931–), Heinz Kurz (1946–), Neri Salvadori (1951–), Pier Paolo Saviotti (–) among others. See also Neo-Ricardianism . The Neo-Ricardian school is sometimes seen to be a component of Post-Keynesian economics .
Neo-Ricardian Trade Theory
Inspired by Piero Sraffa , a new strand of trade theory emerged and was named neo-Ricardian trade theory. The main contributors include Ian Steedman and Stanley Metcalfe . They have criticised neoclassical international trade theory, namely the Heckscher–Ohlin model on the basis that the notion of capital as primary factor has no method of measuring it before the determination of profit rate (thus trapped in a logical vicious circle). This was a second round of the Cambridge capital controversy , this time in the field of international trade. Depoortère and Ravix judge that neo-Ricardian contribution failed without giving effective impact on neoclassical trade theory, because it could not offer “a genuine alternative approach from a classical point of view.”
Evolutionary Growth Theory
Several distinctive groups have sprung out of the neo-Ricardian school. One is the evolutionary growth theory, developed notably by Luigi Pasinetti , J.S. Metcalfe, Pier Paolo Saviotti, and Koen Frenken and others.
Pasinetti argued that the demand for any commodity came to stagnate and frequently decline, demand saturation occurs. Introduction of new commodities (goods and services) is necessary to avoid economic stagnation.
Main article: International trade theory § Ricardian theory of international trade (modern development)
Ricardo's idea was even expanded to the case of continuum of goods by Dornbusch, Fischer, and Samuelson This formulation is employed for example by Matsuyama and others.
Ricardian trade theory ordinarily assumes that the labour is the unique input. This is a deficiency as intermediate goods are a great part of international trade. The situation changed after the appearance of Yoshinori Shiozawa 's work of 2007. He has succeeded to incorporate traded input goods in his model.
Yeats found that 30% of world trade in manufacturing is intermediate inputs. Bardhan and Jafee found that intermediate inputs occupy 37 to 38% in the imports to the US for the years from 1992 to 1997, whereas the percentage of intrafirm trade grew from 43% in 1992 to 52% in 1997.
Chris Edward includes Emmanuel's unequal exchange theory among variations of neo-Ricardian trade theory. Arghiri Emmanuel argued that the Third World is poor because of the international exploitation of labour.
The unequal exchange theory of trade has been influential to the (new) dependency theory .
_ Works_, 1852
Ricardo's publications included:
* _The High Price of Bullion, a Proof of the Depreciation of Bank Notes_ (1810), which advocated the adoption of a metallic currency . * _Essay on the Influence of a Low Price of Corn on the Profits of Stock_ (1815), which argued that repealing the Corn Laws would distribute more wealth to the productive members of society. * _On the Principles of Political Economy and Taxation _ (1817), an analysis that concluded that land rent grows as population increases. It also clearly laid out the theory of comparative advantage , which argued that all nations could benefit from free trade , even if a nation was less efficient at producing all kinds of goods than its trading partners.
His works and writings were collected in:
* _The Works and Correspondence of David Ricardo_, ed. Piero Sraffa with the Collaboration of M.H. Dobb (Indianapolis: Liberty Fund, 2005), 11 vols. This Set Contains The Following Titles:
* The Works and Correspondence of David Ricardo, Vol. 1 Principles of Political Economy and Taxation * The Works and Correspondence of David Ricardo, Vol. 2 Notes on Malthus * The Works and Correspondence of David Ricardo, Vol. 3 Pamphlets and Papers 1809–1811 * The Works and Correspondence of David Ricardo, Vol. 4 Pamphlets and Papers 1815–1823 * The Works and Correspondence of David Ricardo, Vol. 5 Speeches and Evidence * The Works and Correspondence of David Ricardo, Vol. 6 Letters 1810–1815 * The Works and Correspondence of David Ricardo, Vol. 7 Letters 1816–1818 * The Works and Correspondence of David Ricardo, Vol. 8 Letters 1819 – June 1821 * The Works and Correspondence of David Ricardo, Vol. 9 Letters 1821–1823 * The Works and Correspondence of David Ricardo, Vol. 10 Biographical Miscellany * The Works and Correspondence of David Ricardo, Vol. 11 General Index
* ^ Miller, Roger LeRoy. _ Economics Today_. Fifteenth Edition. Boston, MA: Pearson Education. p. 559 * ^ Sowell, Thomas (2006). _On classical economics_. New Haven, CT: Yale University Press . * ^ http://www.policonomics.com/david-ricardo/ * ^ _A_ _B_ Heertje, Arnold (2004). "The Dutch and Portuguese-Jewish background of David Ricardo". _European Journal of the History of Economic Thought_. 11 (2): 281–94. doi :10.1080/0967256042000209288 . * ^ Francisco Solano Constancio, Paul Henri Alcide Fonteyraud. 1847. _Œuvres complètes de David Ricardo_, Guillaumin, (pp. v–xlviii): _A part sa conversion au Christianisme et son mariage avec une femme qu'il eut l'audace grande d'aimer malgré les ordres de son père_ * ^ Ricardo, David. 1919. _Principles of Political Economy and Taxation_. G. Bell, p. lix: "by reason of a religious difference with his father, to adopt a position of independence at a time when he should have been undergoing that academic training" * ^ _A_ _B_ Sraffa, Piero, David Ricardo (1955), _The Works and Correspondence of David Ricardo: Volume 10, Biographical Miscellany_, Cambridge, UK: Cambridge University Press, p. 434, ISBN 0-521-06075-3 CS1 maint: Multiple names: authors list (link ) * ^ "No. 17326". _The London Gazette _. 24 January 1818. p. 188. * ^ "RICARDO, David (1772–1823), of Gatcombe Park, Minchinhampton, Glos. and 56 Upper Brook Street, Grosvenor Square, Mdx.". History of Parliament Online. Retrieved 18 September 2013. * ^ David Ricardo at Find a Grave * ^ Hayek, Friedrich (1991). "The Restriction Period, 1797-1821, and the Bullion Debate". _The Trend of Economic Thinking_. Liberty Fund. pp. 199–200. ISBN 9780865977426 . * ^ King, John (2013). _David Ricardo_. Palgrave Macmillan. p. 48. access-date= requires url= (help ) * ^ Okker, Rudolph. "Re: Samuda". _Gen Forum_. Retrieved 11 September 2014. * ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 11. * ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 47. * ^ On The Principles of Political Economy and Taxation London: John Murray, Albemarle-Street, by David Ricardo, 1817 (third edition 1821) – Chapter 6, On Profits: paragraph 28, "Thus, taking the former . . ." and paragraph 33, "There can, however...." * ^ Roberts, Paul Craig (2003-08-28), "The Trade Question", _Washington Times_ * ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 135. * ^ Samuelson, Paul A. (1972), "The Way of an Economist." Reprinted in _The Collected Papers of Paul A. Samuelson_. Ed. R. C. Merton. Cambridge: Cambridge MIT Press. p. 378. * ^ Robinson, Joan (1979). _Aspects of Development and Underdevelopment_. Cambridge: Cambridge University Press. p. 103. ISBN 0521226376 . * ^ Letter of Mill http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=213&chapter=61555&layout=html&Itemid=27 * ^ Williamson, J. G. (1990). "The impact of the Corn Laws just prior to repeal". _Explorations in Economic History_. 27 (2): 123. doi :10.1016/0014-4983(90)90007-L . * ^ Ricardo, David (1821). _On the Principles of Political Economy and Taxation_. John Murray. p. 7.19. * ^ Ricardo, David (1821). _On the Principles of Political Economy and Taxation_. John Murray. p. 7.19. * ^ Patnaik, Uta (2005). "Ricardo's Fallacy/ Mutual Benefit from Trade Based on Comparative Costs and Specialization?". In Jomo, K. S. _The Pioneers of Development Economics: Great Economists on Development_. London and New York: Zed books. pp. 31–41. ISBN 81-85229-99-6 . * ^ Chang, Ha-Joon (2007), "Bad Samaritans", Chapter 2, pp. 30–31. * ^ Davis, William L., Bob Figgins, David Hedengren, and Daniel B. Klein. " Economics Professors' Favorite Economic Thinkers, Journals and Blogs (along with Party and Policy Views)," _Econ Journal Watch_ 8(2): 126–46, May 2011 . * ^ Schumpeter, _History of Economic Analysis_, (published posthumously, ed. Elisabeth Boody Schumpeter), 1954. pp. 569, 1171. Schumpeter also criticized J. M. Keynes for committing the same Ricardian vice. * ^ Landreth Colander 1989 _History of Economic Thought_ Second Edition, p.137. * ^ George, Henry , Progress and Poverty . Preface to the 4th Edition, November 1880. * ^ Piero Sraffa and M.H. Dobb, editors (1951–1973). _The Works and Correspondence of David Ricardo_. Cambridge University Press, 11 volumes. * ^ Sraffa, Piero 1960, _Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory_. Cambridge University Press. * ^ Steedman, Ian, ed. (1979). _Fundamental Issues in Trade Theory_. London: MacMillan. ISBN 0-333-25834-7 . * ^ Steedman, Ian (1979). _Trade Amongst Growing Economies_. Cambridge, UK: Cambridge University Press. pp. . ISBN 0-521-22671-6 . * ^ Edwards, Chris (1985). "§ 3.2 The 'Sraffian' Approach to Trade Theory". _The Fragmented World: Competing Perspectives on Trade, Money, and Crisis_. London and New York: Methuen & Co. pp. 48–51. ISBN 0-416-73390-5 . * ^ Christophe Depoortère, Joël Thomas Ravix 2015 The classical theory of international trade after Sraffa. Cahiers d'économie Politique / Papers in Political Economy (69): 203–34, February 2015. * ^ Pasinetti, Luisi 1981 Structural change and economic growth, Cambridge University Press. J.S. Metcalfe and P.P. Saviotti (eds.), 1991, _Evolutionary Theories of Economic and Technological Change_, Harwood, 275 pages. J.S. Metcalfe 1998, _Evolutionary Economics and Creative Destruction_, Routledge, London. Frenken, K., Van Oort, F.G., Verburg, T., Boschma, R.A. (2004). _Variety and Regional Economic Growth in the Netherlands – Final Report_ (The Hague: Ministry of Economic Affairs), 58 p. (pdf) * ^ Saviotti, Pier Paolo; Frenken, Koen (2008), "Export variety and the economic performance of countries", _Journal of Evolutionary