- Person
- David Ricardo
- Lived
- 1772–1823
- Field
- Economics and finance
- From
- British
The story
David Ricardo was born in London in 1772 into a Sephardic Jewish family of Portuguese origin that had recently moved from the Dutch Republic. He began working with his father, a stockbroker, at fourteen and made a fortune in finance. In 1799, while staying at Bath, he picked up a copy of Adam Smith's Wealth of Nations and became fascinated by political economy. Encouraged by his friend James Mill, he set out his ideas in 1817 in On the Principles of Political Economy and Taxation.
For centuries most economists had followed mercantilism, the belief that a nation grows rich by selling more than it buys and piling up gold and silver. Ricardo challenged that idea. Using an example of England and Portugal producing cloth and wine, he showed that even if Portugal could make both goods with less labour, both countries would still be better off if each specialised in the good it produced relatively most efficiently and traded for the other. As he put it, the produce of the labour of 100 Englishmen might be exchanged for the produce of the labour of 80 Portuguese. The economist Paul Samuelson later called the numbers in Ricardo's example the "four magic numbers".
Ricardo concluded that international trade increases the wealth of all the countries taking part. He was careful about the conditions: he recognised that the argument assumed capital stayed at home, and that if capital moved freely, production might simply relocate abroad.
Others had touched on the idea, notably Robert Torrens in his 1815 Essay on the External Corn Trade, and the name comparative advantage came into use later through John Stuart Mill and his contemporaries. But Ricardo's Principles gave the theory its classic form, and the principle of comparative costs has been described as perhaps the most widely accepted of the truths of political economy.
Economists have extended Ricardo's model ever since, in the Ricardo-Viner and Heckscher-Ohlin models and in work by Rudiger Dornbusch, Stanley Fischer and Samuelson. Critics such as Joan Robinson and Ha-Joon Chang have argued that its assumptions do not always hold and that developing countries may need protection to build new industries, though Chang calls the theory absolutely right within its narrow confines. US economists rank Ricardo second only to Adam Smith among economic thinkers before the twentieth century.
Why it matters
Comparative advantage remains a foundation of international economics and helps explain how trade can raise living standards in rich and poor countries alike.
About David Ricardo
Sephardic stockbroker’s son who made a fortune in the City, then founded classical economics, the theory of comparative advantage, rent and money behind the case for free trade.
More about David Ricardo
- David Ricardo called slavery a stain on BritainDavid Ricardo was an abolitionist. In March 1823 he told a meeting of the East India Company’s Court that he regarded slavery as a stain on the nation’s character.
- David Ricardo voted to end the death penalty for forgeryAs an MP, David Ricardo voted in 1821 to abolish the death penalty for forgery, backed criminal law reform and sought an inquiry into the Peterloo Massacre.
- David Ricardo admitted machines could hurt workersIn 1821 David Ricardo added a chapter “On Machinery” to his Principles, openly changing his mind and accepting that machines could harm workers’ interests.
- David Ricardo warned against issuing too much moneyIn 1810 David Ricardo published The High Price of Bullion, arguing that the Bank of England’s excessive note issue had caused banknotes to lose value.
- David Ricardo’s theory of rent inspired later reformersDavid Ricardo explained economic rent as the extra return from better land, an idea that inspired Henry George’s 1879 classic Progress and Poverty.
- David Ricardo campaigned against Britain’s Corn LawsDavid Ricardo argued that Britain’s Corn Laws made bread dearer and held back growth. After his death Parliament repealed them in 1846 and free trade became policy.
- David Ricardo backed reform of Parliament and the ballotDavid Ricardo used his seat in Parliament to support parliamentary reform and the secret ballot, speaking for reform at a Westminster dinner in 1822.
- David Ricardo proposed an independent central bankIn his Plan for the Establishment of a National Bank, published in 1824, David Ricardo argued that money should be issued by an independent public body.
Sources
- David Ricardo Wikipedia
- Ricardo, David (1772–1823) Carleton University
- Comparative advantage Wikipedia
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