David Ricardo

David Ricardo was one of those rare people who achieved both tremendous success and lasting fame. After his family disinherited him for marrying outside his Jewish faith, Ricardo made a fortune as a stockbroker and loan broker. When he died, his estate was worth more than $100 million in today's dollars. At age twenty-seven, after reading Adam Smith's The Wealth of Nations, Ricardo got excited about economics. He wrote his first economics article at age thirty-seven and then spent the following fourteen years—his last ones—as a professional economist.

David Ricardo was a brilliant classical economist. His policies of free trade and hard money helped propel Britain into its role as 'workshop of the world' and as an industrial giant, yet his labor theory of value and antagonistic model of capitalism proved misguided and gave unexpected support to the Marxists and socialists. ... He argued that England's raging inflationary price spiral was caused by the Bank of England issuing excessive bank notes to pay for the war against France. ... He made profound contributions to economics, including the laws of comparative advantage, diminishing returns, and the quantity theory of money.

David Ricardo and James Mill were more dogmatic in their adherence to what is now known as Say's law of markets. And when Thomas Malthus objected to that law, Ricardo took him on far more than did Say, who could see two sides of an argument ... Whatever the case, Ricardo won the great debate with Malthus ... Since [the early 1980's], however, Say's law has reasserted itself. Ricardo's initial victory is reflected today in deregulation, in the privatization of state enterprises, in the expanding global market and, most recently, in the commentary on the Asian crisis.

[Secretary Ross] misunderstands the one true and nontrivial principle in the social sciences, which is Ricardo's theory of comparative advantage ... David Ricardo clearly explained the theory ... in On the Principles of Political Economy and Taxation 200 years ago. He stated:

... Though [Portugal] could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England ...

David Ricardo, because he accepted Smith's concept of embodied labor, exerted "a tremendous and evil influence in ways then all unforeseen. Labor is the source of value...; labor is the cause of value; labor produces all wealth. Naturally follows the ethical and political conclusion: if labor produces all wealth then labor should receive all wealth." A conclusion "the Ricardian socialists" were all too eager to embrace and which Karl Marx later used to great effect.

To explain this, we have to go back to one of the most important contributions to economic theory, David Ricardo's law of comparative advantage, which the late Murray Rothbard called "indispensable to the case for free trade." (According to Rothbard it was James Mill, not Ricardo, who first formulated the law.) The question Ricardo was addressing was whether a group of people (such as a country) would have an economic interest in trading with another group even if the first was more efficient than the second at producing all goods.

According to economist Paul Craig Roberts, ... Ricardo's law depends on the inability of capital and labor to move across national boundaries. Since that condition no longer obtains, the law of comparative advantage no longer operates ... When reading Ricardo, one is hard-pressed to see the argument that Roberts makes. Ricardo notes that capitalists are reluctant to move their capital from their home country, but he doesn't say that there would be no gains from trade if that were not the case ... [H]e says consumers in both countries would benefit if capital moved to the more efficient area.

In 1809, David Ricardo ... published a monograph entitled The High Price of Bullion. He argued that the depreciation of the British pound was due solely to the excessive expansion of the Bank of England's notes that had been made possible by the removal of redemption on demand in gold by the Restriction Act. Ricardo reasoned that the close connection between the Bank of England and the British government, due to ... the former's large amount of lending irredeemable paper money to the government, had resulted in the Bank's losing any independence it had in its money-creation powers.

The electors of Portarlington are said to have been about twelve in number ... [Ricardo] was elected on February 20, 1819, ... and ... on the dissolution of Parliament at the death of George III he was re-elected for the same constituency, and continued to represent it till his death on September 11, 1823. For his time Ricardo was a very active member ... [I]t is clear that he must have attended divisions most conscientiously. As regards the miscellaneous questions of general politics which concern an economist no more than any other citizen, [he] invariably acted with the most liberal section ...

In treating on the subject of the profits of capital, it is necessary to consider the principles which regulate the rise and fall of rent; as rent and profits, it will be seen, have a very intimate connexion with each other. The principles which regulate rent are briefly stated ... [For] it is as certain that corn is rendered cheap, rents are lowered, and the ability of the landlord to pay taxes, is for a time, at least, as much impaired by such improvements, as by the importation of corn. To be consistent then, let us by the same act arrest improvement, and prohibit importation.