David Ricardo

David Ricardo was a British economist of the classical school who is regarded as one of the most influential figures in the history of economic thought. He developed the theory of comparative advantage and made fundamental contributions to the theory of value, of rent, and of distribution.

Early Life and Career

Ricardo was born in 1772 in London to a family of Sephardic Jewish immigrants from the Netherlands. He was sent to Amsterdam for part of his education and entered his father's business as a stockbroker.

He broke with his family after his marriage to a Quaker and established himself independently. He made a large fortune on the stock exchange during the Napoleonic wars.

He retired from business and devoted himself to economics and to politics. He purchased the estate of Gatcomb Park and was elected to Parliament in 1819.

The Theory of Rent

Ricardo's essay on the influence of a low price of corn on the profits of stock, published in 1815, developed the theory of rent. He argued that rent arises from the differences in the fertility of land.

The cultivation of progressively poorer land is required to feed a growing population, and the surplus on the better land accrues to the landlord as rent. The theory explained the distribution of income among the classes.

He used the theory to argue against the corn laws, which restricted the import of grain. The campaign for free trade in grain culminated in the repeal of the corn laws in 1846.

Comparative Advantage

Ricardo's most famous contribution is the theory of comparative advantage, set out in the Principles of Political Economy and Taxation, published in 1817. The theory explains why trade can benefit both countries even when one is more efficient in every line of production.

He used the example of England and Portugal and of cloth and wine. The argument is that each country should specialise in the goods in which it has a comparative advantage, measured by the opportunity cost.

The theory is the foundation of the modern case for free trade. It has been extended and refined by later economists and remains central to international economics.

The Theory of Value and Distribution

Ricardo sought to develop a theory of value that would explain the distribution of the product among wages, profits, and rent. He identified the quantity of labour as the principal determinant of value.

He also examined the tendency of profits to decline as the margin of cultivation is extended. The analysis influenced the development of the labour theory of value and of the theory of growth.

He corresponded with Thomas Malthus and with James Mill, and his work was part of a vigorous debate about the causes of poverty and of economic stagnation.

Later Life and Legacy

Ricardo died in 1823 at Gatcomb Park. He had recently published a plan for a national bank and had been active in Parliament.

His work shaped the development of classical economics and of the socialist critique that followed. Marx drew on the labour theory of value, and the marginalists criticised the theory of value and developed the theory of marginal utility.

His theory of comparative advantage remains one of the most powerful arguments in economics. He is regarded as one of the founders of the discipline.

The Principles of Political Economy

The Principles of Political Economy and Taxation was published in 1817 and became the standard work of classical economics. It developed the theory of value, of rent, and of distribution.

Ricardo argued that the value of a commodity is determined by the quantity of labour required for its production. The theory was later criticised by the marginalists.

He analysed the effects of the corn laws on the distribution of income. He showed that the restriction of imports benefited the landlords at the expense of the other classes.

The Bullion Controversy

Ricardo was a leading participant in the controversy over the price of gold and the value of the currency. He argued that the depreciation of the paper pound was caused by the overissue of banknotes.

He proposed the resumption of cash payments and the establishment of a gold standard. The recommendations were adopted after the Napoleonic wars.

The controversy established his reputation as a monetary economist. He wrote further pamphlets on the national debt and on the funding system.

The Method of Political Economy

Ricardo's method was abstract and deductive. He began with simplified assumptions and derived conclusions by logical reasoning.

He was criticised for the abstractness of his method and for its distance from reality. He defended it as a means of identifying the tendencies of the economic system.

His method influenced the development of economic theory, including the work of Marx and of the marginalists. The debate about the proper method of economics continues.

Political Career

Ricardo was elected to Parliament in 1819 and sat as a member for Portarlington. He spoke on currency, on the corn laws, and on parliamentary reform.

He supported the independence of the South American colonies and opposed the alliance of the European powers. He was a member of the Benthamite circle.

He was a member of the Political Economy Club, founded in 1821, and he corresponded with Malthus, James Mill, and other economists.

Legacy

Ricardo is regarded as one of the founders of classical economics and as the most rigorous of the early theorists. His theory of comparative advantage remains central to international trade.

His work influenced the development of Marxism and of marginalism. The socialist critique of capitalism drew on his theory of value.

His method and his conclusions have been debated throughout the history of economics. He is remembered as a thinker of great analytical power.

See also

• Comparative advantage
• Classical economics