David Ricardo
David Ricardo (April 18, 1772 – September 11, 1823), a British political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists. He was also a successful businessman, financier and speculator, and amassed a considerable fortune.
Personal life
Born in London, Ricardo was the third of seventeen children in a Sephardic Jewish family (from Portugal) that emigrated from The Netherlands to England just prior to his birth. At age 14 Ricardo joined his father at the London Stock Exchange, where he began to learn about the workings of finance. This beginning set the stage for Ricardo's later success in the stock market and real estate.
Ricardo rejected the orthodox Jewish beliefs of his family and eloped with a Quakeress, Priscilla Anne Wilkinson, when he was 21, leading to estrangement from his close family. It seems likely, for example, that his mother never spoke to him again. This was around the same time Ricardo became a Unitarian.
Ricardo became interested in economics after reading Adam Smith's The Wealth of Nations in 1799 on a vacation to the English resort of Bath.
Ricardo's work with the stock exchange made him quite wealthy, which allowed him to retire from business in 1814 at the age of 42. He then purchased and moved to Gatcombe Park, an estate in Gloucestershire.
In 1819, Ricardo purchased a seat in the British parliament as a representative of Portarlington, a borough of Ireland. He held the post until the year of his death in 1823. As an MP, Ricardo advocated free trade and the repeal of the Corn Laws.
Ricardo was a close friend of James Mill, who encouraged him in his political ambitions and writings about economics. 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 land owners in a society. He also was a member of London's intellectuals, later becoming a member of Malthus' Political Economy Club, and a member of the King of Clubs.
He died at Gatcombe Park at 51 years of age.
Ideas
Ricardo's most famous work is his Principles of Political Economy and Taxation.
This book introduces the theory of comparative advantage. According to Ricardo's theory, even if a country could produce everything more efficiently than another country, it would reap gains from specializing in what it was best at producing and trading with other nations. (Case & Fair, 1999: 812–818). Comparative advantage forms the basis of modern trade theory, reformulated as the Heckscher-Ohlin theorem, which states that a country has a comparative advantage in the production of a product if the country is relatively well-endowed with inputs that are used intensively in producing the product. (Case & Fair, 1999: 822).
Like Adam Smith, Ricardo was also an opponent of protectionism for national economies, especially for agriculture. He believed that the British "Corn Laws" — tariffs on agriculture products — ensured that less productive domestic land would be harvested and rents would be driven up. (Case & Fair, 1999: 812, 813). Thus, the surplus would be directed more toward feudal landlords and away from the emerging industrial capitalists. Since landlords tended to squander their wealth on luxuries, rather than investments, Ricardo believed that the Corn Laws were leading to the economic stagnation of the British economy. Parliament repealed the Corn Laws in 1846.
Another idea associated with Ricardo is Ricardian equivalence, an argument suggesting that in some circumstances a government's choice of how to pay for its spending (i.e., whether to use tax revenue or issue debt and run a deficit) might have no effect on the economy. Ironically, while the proposition bears his name, he does not seem to have believed it. Economist Robert Barro is responsible for its modern prominence.
Ricardo also popularized the iron law of wages, which states that wages cannot rise above a certain level.
Publications
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
- 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 showed 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.
ReferencesISBN links support NWE through referral fees
- Case, Karl E. & Fair, Ray C. (1999). Principles of Economics (5th ed.). Prentice-Hall. ISBN 0-13-961905-4.
- Samuel Hollander - The Economics of David Ricardo (University of Toronto Press, 1979)
External links
- On the Principles of Political Economy and Taxation, by David Ricardo. Complete, fully-searchable text at the Library of Economics and Liberty.
- Biography, at the Concise Encyclopedia of Economics
- Biography at New School University
- Biography on Ricardo for A level students on tutor2u
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