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David Ricardo: Political Economy
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David Ricardo (1772-1823), the founder of the classical school of economics, applied the deductive logic of the philosopher James Mill to the analysis of monetary principles. His chief work, Principles of Political Economy and Taxation, first published in 1817, had a profound imapct and remains one of the groundworks of modern economics. Ricardo's labor theory of values, as well as his elaboration of the division of incomes, and the function of wages, rent, and trade, deeply influenced the economic philosophies of Karl Marx, John Stuart Mill, Alfred Marshall, and many others.
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David Ricardo maintained that the economy generally moves towards a standstill. His analysis is rooted in a modified version of the labor theory of value. He held out the belief that the rate of profit for society as a whole depends on the amount of labor necessary to support the workers who farm "the most barren land that can still maintain agriculture" This model breaks land down into categories based on average fertility rates. The most fertile land naturally produces more food than land of poorer quality. As a result it commands a higher rent. The poorest land utilized for agriculture receives no rent, with all of its earnings going to cover labor and capital costs.
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After 1811, the monetary controversies before the general public subsided, and Ricardo did not publish anything else until 1815. His interest in political economy ... did not lapse, and he continued to be engaged in private discussions on monetary points (especially with Malthus). In August 1813, however, their correspondence records a move from the “old question” to one on the effects of the opening of new markets—in particular, its effects on the rate of profits. This was probably connected with the issue of the restrictions to the corn trade which had been raised before Parliament in the first months of 1813. The discussion caused Ricardo to go into the question of whether an increase of capital diminishes profits, and into the theory of distribution. By March 1814 he had written some “papers on the profits of Capital” (which are not extant), and in February 1815, when “the question of the Corn Laws came before Parliament for the third year in succession” (Smart, 1910, p. 445), Ricardo published his Essay on the Influence of a Low Price of Corn on the Profits of Stock; Shewing the Inexpediency of Restrictions on Importation (now generally known as Essay on Profits).
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Ricardo successfully pursued a career as a stockjobber and then as a loan contractor, and when he was forty-two, his accumulated wealth permitted him to retire from business. Bored with the idle life, he turned his attention to politics and intellectual pursuits. After a hesitant beginning as a writer on economic subjects, Ricardo etched his name on the pages of history by publishing a treatise, On the Principles of Political Economy and Taxation. He was not an accomplished writer, having a heavy-handed, obscure, and abstract style. Nevertheless, the force of his logic almost immediately attracted a close-knit band of gifted if dogmatic disciples.
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David Ricardo (1772–1823), a British economist recognized as a founder of the school of classical economics and regarded as one of history's most important economists. Ricardo first articulated the law of diminishing returns in 1815. One of the most fundamental laws of economics, it holds that as more and more resources are combined in production with a fixed resource—for example, as more labor and machinery are used on a fixed amount of land—the additions to output will diminish. On foreign trade, Ricardo is famous for his theory of comparative advantage. He argued that there are gains from trade if each nation specializes completely in the production of the good in which it has a "comparative" cost advantage, and then trades those goods with other nations in exchange for other goods. In Principles of Political Economy and Taxation (1817), Ricardo articulated a “labor-embodied" theory of value in which the relative "natural" prices of commodities are determined by the relative hours of labor expended in their production.
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Ricardo's most famous work is his Principles of Political Economy and Taxation. Ricardo opens the first chapter with a statement of the labour theory of value. Later in this chapter, he demonstrates that prices do not correspond to this value. He retained the theory... as an approximation. Ricardo continued to work on his value theory to the end of his life.
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