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David Ricardo: Theories
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David Ricardo, working in the early part of the 19th century, realised that absolute advantage was a limited case of a more general theory. Consider Table 1. It can be seen that Portugal can produce both wheat and wine more cheaply than England (ie it has an absolute advantage in both commodities). What David Ricardo saw was that it could still be mutually beneficial for both countries to specialise and trade.
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There can be little doubt that Ricardo is to be numbered among the exponents of the quantity theory of money, and one of the most rigid at that. The bulk of his writings on money belong to the Bullion Controversy of the early 1810s; they are among the best known and most widely acclaimed of his works. There was little if no change in Ricardo’s monetary thought in the later part of his life, as far as general principles are concerned. It is certainly true that, as noticed for instance by Viner (1937, p. 141), in his 1819 Parliamentary evidence on the resumption of cash payments Ricardo appears less rigid, and allows that the strict principles he had earlier advocated could be qualified, but this does not really depend upon a change in his theoretical positions, but rather reflects the very nature of that contribution: an oral argumentation with the members of the Committees. Moreover, the emphasis of the enquiry was rather on the practical than on the abstract aspects of monetary problems, and it is on practical matters that Ricardo appears to make concessions.
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The theory of Comparative Advantage was developed in the early part of the 19th century by British economist David Ricardo. For details Google David Ricardo Comparative Advantage. Here is the simple version:
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[S]tudents of the Ricardian economics have received by successive publication since 1887 an amount of Ricardo's informal writing hardly less in extent than the aggregate of his formal composition. Such an accession in the case of an economist of indistinct personality, profound thought, and unsystematic exposition could not fail to be productive of important results. The series of letters to Malthus,(1) McCulloch,(2) and Trower(3) respectively, and the privately printed correspondence of his Continental tour,(4) have not only modified the common estimate of Ricardo's personal character, in acquainting us for the first time with his every-day activity, but have corrected glaring misconceptions of certain of his fundamental doctrines. Even more notable than this, they have made it possible to follow the course of Ricardo's mental history as an economist, and to study with some exactness the evolution of his most characteristic theories. Something of this has already been done, but most of it still awaits cautious and precise interpretation.
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Ricardo is lesser known for his theories of taxation, which closely track those of Adam Smith. However, his theory of comparative advantage, like his analysis of taxation, provides a solid foundation for modern principles of taxation, regulation, and public finance.
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McCulloch's explanation was much too limited and unreal to be entirely acceptable to Ricardo. Moreover, Torrens's criticisms were supplemented by similar expressions from other quarters. As early as September, 1817, Malthus had given Ricardo's work a second careful perusal, and had found the measure of value--in Ricardo's phrase--one of "a very few important points on which we materially differ," and had won from him the free admission that the proposed theory of value did not hold good in different countries when profits were different.(64) Similarly, some months later, the outcome of discussions between Lord King, Wishaw, and Malthus, was recorded by Ricardo as agreement that "the measure of value is not what I have represented it to be."(65)
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