David Ricardo (1772
) was a British economist who developed two economic theories that are still valued today - distribution theory
and the theory of comparative advantage
. Ricardo's theory of comparative advantage is particularly important because it was the first to concretely articulate the value of free trade
Ricardo was born on April 18, 1772, the third of 17 children. Both his father, Abraham Israel Ricardo and his mother, Abigail Delvalle, were practicing Sephardic Jews. Abraham Ricardo was a successful merchant banker and the family was very wealthy. During David's childhood the family lived in Amsterdam but moved to London when he was a teen. Ricardo recieved little formal education, going to work for his father at age 14.
At age 21, Ricardo defied his parents' wishes by marrying a Quaker, Priscilla Ann Wilkinson, and was disinheirited and cut off from his family. He went to work on his own as a stockbroker, and was so fabulously successful that he was able to retire at age 42 and concentrate solely on his economic and political writings. At his death, his estate was worth approximately £725,000, and produced a yearly income of £28,000 (about $1.15 million in modern US dollars).
As one of the foremost of the classical economists, Ricardo was friends with several of the leading economic thinkers of his day, including Thomas Malthus and Jean-Baptiste Say. Ricardo particularly credited his conversations with Malthus for spurring him to think about political economy in new ways. Ricardo wrote of these conversations: "My discussions with Malthus have been innumerable, and in my eagerness to convince him that he was wrong, on some points on which we differed, I was led into a deeper consideration of many parts of the subject than I had before given them, and though I have failed to convince him, and may not have satisfied others, I have convinced myself."
Like Malthus, Ricardo took an essentially pessimistic view of the future of human society and agreed with many of his views on the inevitability of human population explosion. Working with Malthus he developed Distribution Theory, which was the first economic theory to make use of the idea of diminishing returns. Distribution theory states that as population grows, more land will have to be cultivated and the return from this land will not be constant because the amount of capital available will not grow at the same rate - newly cultivated land will suffer from diminishing returns and eventually returns will not be enough to attract any further capital. At this point, argued Ricardo, the maximum level of "economic rent" will have been earned - capital will no longer be invested in opening new lands for cultivation, and will instead be shifted to other activities.
Distribution is still valued as a theory today, but even more revered is a theory Ricardo put forward about International trade that has come to be called "the theory of comparative advantage". Ricardo recognized that if two countries have different opportunity costs for different goods, they will both come out ahead if they specialize in manufacturing and trading those goods in which they have a lower opportunity cost (or "comparative advantage"), even if one country has an absolute advantage in producing all the goods. This theory is quite powerful and has become the strongest, most convincing argument in favor of free trade. For this theory alone Ricardo is virtually worshipped by many modern economists.
Ricardo also published treatises on the British monetary system, rent and wages, and on an idea for a national bank. Ricardo became a member of Parliament in 1819 and served until his sudden death on September 11, 1823, from complications resulting from an untreated ear infection. He was survived by his wife and seven children.
Recently Ricardo was the main character in the novel The Choice: a Fable of Free Trade and Protectionism
by Russell Roberts.
- The High Price of Bullion, A Proof of the Depreciation of Bank Notes (1810)
- Observations on some Passages in a Article in the Edinburgh Review, on the Depreciation of the Paper Currency (1811)
- Reply to Mr Bosanquet's Practical Observation on the Report of the Bullion Committee (1811)
- An Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815)
- Proposals for an Economical and Secure Currency (1816)
- On the Principles of Political Economy and Taxation (1817)
- On Protection in Agriculture (1822)
- Mr Ricardo's Speech on Mr Western's Motion, for a Committee to consider the Effects produced by the Resumption of Cash payments (1822)
- Plan for the Establishment of a National Bank (1824)