David Ricardo
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
.
[2][3]
Ricardo was also a politician, and a member of the
Parliament of
Great Britain and Ireland
.
The Right Honourable
David Ricardo
Portrait by
Thomas Phillips
, c. 1821
Member of Parliament
for
Portarlington
In office
20 February 1819 – 11 September 1823
Preceded by
Richard Sharp
Succeeded by
James Farquhar
Personal details
Born
18 April 1772
London, England
Died
11 September 1823 (aged 51)
Gatcombe Park
, Gloucestershire, England
Political party
Whig
Children
Including
David the Younger
Profession
Businessman • economist
Academic career
School or
tradition
Classical economics
Influences
Ibn Khaldun
·
Smith
·
Bentham
Born in London, England, Ricardo was the third surviving of the 17 children of successful
stockbroker Abraham Israel Ricardo (1733?–1812) and Abigail (1753-1801), daughter of
Abraham Delvalle (also "del Valle"), of a respectable
Sephardic Jewish
family that had been
settled in England for three generations as "small but prosperous" tobacco and snuff
merchants, and had obtained British citizenship. Abigail's sister, Rebecca, was wife of the
engraver
Wilson Lowry
, and mother of the engraver
Joseph Wilson Lowry
and the geologist,
mineralogist, and author
Delvalle Lowry
.
[4][5][6][7]
The Ricardo family were Sephardic Jews of
Portuguese
origin who had recently relocated from the
Dutch Republic
.
[6]
Ricardo began
working with his father at the age of 14. At the age of 21 Ricardo eloped with a
Quaker
,
Priscilla Anne Wilkinson, and, against his father's wishes, converted to
Unitarianism
.
[8]
This
religious difference resulted in estrangement from his family, and he was led to adopt a
position of independence.
[9]
His father disowned him and his mother apparently never spoke
to him again.
[10]
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 by profitably financing
Government borrowing. There is a story that he made his fortune as a result of speculation on
the outcome of the
Battle of Waterloo
:
The Sunday Times
reported in Ricardo's obituary,
published on 14 September 1823, that during the battle Ricardo "netted upwards of a million
sterling", a huge sum at the time, and this was later popularised by the economist
Paul
Samuelson
; in reality Ricardo was already very rich and in June 1815 sold his latest
government stock before the result of the battle was known in London, so missing half of
the rise.
[11]
He retired, and subsequently purchased
Gatcombe Park
, an estate in
Gloucestershire
, and
retired to the country. He was appointed
High Sheriff of Gloucestershire
for 1818–19.
[12]
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 five years later.
[13]
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
Contributions
Ricardian equivalence
,
labour theory of value
,
comparative advantage
,
law of diminishing
returns
,
Ricardian socialism
,
Economic rent
[1]
Personal life
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
.
[10]
His youngest sister was author
Sarah Ricardo-Porter
(e.g.,
Conversations in Arithmetic
).
As MP for
Portarlington
, Ricardo voted with the opposition in support of liberal political
movements in
Naples
and
Sicily
, and for inquiry into the administration of justice in
Tobago
. He
divided for (voted for) repeal of the
Blasphemous and Seditious Libels Act
; then for inquiry
into the
Peterloo massacre
; and, in 1821, for abolition of the death penalty for forgery.
He adamantly supported
free trade
. In 1821 he voted against renewal of the sugar duties, and
objected to the higher duty on
East
Indian as opposed to
West
Indian produce. He opposed
the timber duties. He voted silently for parliamentary reform and in 1822 spoke in its favour
at the Westminster anniversary reform dinner; and again voted for criminal law reform.
Ricardo believed that increasing imports by free trade boosted the wellbeing of mankind by
increasing the amount of goods cheaply available for subsistence and consumption. He was
said to have "possessed an extraordinary quickness in perceiving in the turns of the market
any accidental difference which might arise between the relative price of different
stocks".
[14]
And he grew his wealth dealing in securities during the Revolutionary and
Napoleonic wars.
As the Napoleonic Wars waged on, Ricardo developed a disdain for the
Corn Laws
imposed by
the British to encourage exports. Notably, government intervention in the
grain trade
can be
traced as far back as the 1400s; and thereafter trade was controlled, regulated, and taxed.
Meanwhile, England developed a capitalist economy involving workers and landlords
generating and consuming incomes and capital accumulations that depended entirely on
capitalists’ profits,
[15]
and these key economic elements were under perpetual pressure
during the eighteenth and early nineteenth centuries.
Political reform was needed as agricultural output was struggling to keep pace with
population growth. The Corn Laws imposed barriers to imports that increased
subsistence/consumption costs and triggered demand for higher wages. Higher wages
reduced profits for agricultural producers, and had the immediate effects of reducing capital
investments and slowing the growth of a nation's economy. Rising rents, attributed by Ricardo
to the Corn Laws, came at the expense of the economic profits of nations. For David Ricardo,
free trade was ever the answer; he envisioned Britain as importing agriculture products in
Parliamentary record
exchange for exporting manufactured goods.
[16]
Eventually, after his death, the
interventionist laws were repealed, and his free trade views became public policy in Britain.
[17]
Of David Ricardo, 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."
Ten years after retiring and four years after entering Parliament, Ricardo died from an
infection of the middle ear that spread into his brain and induced
septicaemia
. He was 51.
He and his wife Priscilla had eight children together including
Osman Ricardo
(1795–1881; MP
for
Worcester
1847–1865),
David Ricardo
(1803–1864, MP for
Stroud
1832–1833) and
Mortimer Ricardo, who served as an officer in the
Life Guards
and was a
deputy lieutenant
for
Oxfordshire
.
[18]
Ricardo is buried in an ornate grave in the churchyard of
Saint Nicholas
in Hardenhuish, now a
suburb of
Chippenham
, Wiltshire. At the time of his death his assets were estimated at
£675,000–£775,000.
[7]
He wrote his first economics article at 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.
[19]
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.
[20]
Banking
Adam Smith
argued that free commercial banking, such as the banking system in Scotland
which had no
central bank
when
Wealth of Nations
was written in 1776, was favorable to
economic growth. Writing just a few decades later, Ricardo argued for a central bank, a cause
Death and legacy
Ideas
that was taken up by his students, including
John Stuart Mill
, who was known to favor the
laissez-faire
policies in every place but banking.
Ricardo wrote the
Plan for the Establishment of a National Bank
(published posthumously in
1824), which argued for the autonomy of the central bank as the issuer of money.
[21]
Ricardo proposed that a ratio of gold and Treasury bills, and a fixed claim (asset) against the
government, would secure the central bank's liquidity:
[22]
The public, or the Government on behalf of the public, is indebted to
the Bank in a sum of money larger than the whole amount of Bank
notes in circulation; for the Government not only owes the Bank
fifteen million, its original capital, which is lent at 3 per cent.
interest, but also many more millions which are advanced on
Exchequer bills, on half-pay and pension annuities, and on other
securities. It is evident, therefore, that if the Government itself were
to be the sole issuer of paper money instead of borrowing it of the
Bank, the only difference would be with respect to the interest: the
Bank would no longer receive interest and the Government would
no longer pay it; but all other classes in the community would be
exactly in the same position in which they now stand.
Ricardo was a man of many trades, economically and financially speaking. Ricardo was able to
recognize and identify the problem presented through banking within regulations and
debauched standards of approval at certain times. Ricardo knew that banks in rural areas as
well as the Bank of England had increased note lending and overall lending in 1810. Through
this, Ricardo proved subsequent changes in price level through the market was also affected
and thus new regulations needed to be made available. Furthermore, Ricardo was able to
understand and distinguish the socioeconomic makeup that created and established
parameters around different classes within the economy. Ricardo advocated for the
productive powers of labor to be held in high concern as the most influential of devices that
played a role in the progression of the American Economy along with others. In addition,
Ricardo made notable advancements in the concept build involving reactions in the open
market when considering banking altercations, stock investments, or other considerable
impacting events. Ricardo wanted to establish a firm ground between the bank and the
control over monetary policy because there was power within the banking system that
Ricardo believed needed to be considered carefully. In 1816, Ricardo said “In the present
state of the law, they have the power, without any control whatever, of increasing or reducing
the circulation in any degree they may think proper: a power which should neither be entrusted
to the State itself, nor to anybody in it; as there can be no security for the uniformity in the
value of the currency, when its augmentation or diminution depends solely on the will of the
issuers.” Ricardo felt the circulation of money and the decision behind how much is available
at any time should not be entrusted to either the State, or any individual. Ricardo argued for
the most even distribution possible with the highest control readily available.
David Ricardo, The Principles of Political Economy and Taxation
Value theory
David Ricardo worked to fix the issues he felt were most concerning with
Adam Smith
’s
Labour Theory of Value. Both men worked with the assumption that land, labour, and capital
were the three basic factors of production. However, Smith narrowed in on labour as the
determinant of value. Ricardo believes that with production having 3 main factors it is
impossible for only one of them to determine value on its own.
[23]
Ricardo illustrates his point
by adapting Smith's deer beaver analogy to show that even when labour is the only factor of
production the hardship and tools of the labour will drive a wedge in the relative value of the
good. Due to his criticisms of the Labour Theory of Value
George Stigler
called his theory a
"93% labor theory of value".
[24]
Ricardo's most famous work is his
Principles of Political Economy and Taxation
(1817). He
advanced a
labour theory of value
:
[25]
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:
[26]
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.
Rent
Ricardo contributed to the development of 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 labour." Ricardo believed that the process of economic development,
which increased land use 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
[27]
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."
Ricardian theory of international trade
Ricardian equivalence
Influence and intellectual legacy
Publications
See also
References
Further reading
External links
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