- Person
- David Ricardo
- Lived
- 1772–1823
- Field
- Economics and finance
- From
- British
The story
In February 1797, under the strain of war with France, Britain suspended the convertibility of Bank of England notes into gold. Towards the end of 1799 the effects began to show, as the pound fell abroad and gold commanded a premium over paper money. That same year David Ricardo, a successful London stockbroker, read Adam Smith's Wealth of Nations and became absorbed in political economy. As the economist Walter Bagehot later put it, political economy came to him.
In the summer of 1809 the paper price of gold rose sharply and the pound's external value fell. On 29 August Ricardo, then 37, published his first economic writing, an anonymous article in The Morning Chronicle on the price of gold, arguing that the Bank of England should reduce its issue of banknotes. In the first days of 1810 he followed it with a pamphlet, The High Price of Bullion, a Proof of the Depreciation of Bank Notes. He argued that the rising price of gold showed that paper money had lost value because too much of it had been issued, and that rules were needed to keep the currency stable.
The pamphlet made an immediate impact. It reached a fourth edition by April 1811, and scarcely a month after it appeared, Francis Horner moved in the House of Commons for an inquiry into the high price of bullion. The resulting Bullion Report of August 1810 shared most of Ricardo's positions, and he became one of the leading figures of the Bullion Controversy, defending the report in further letters and pamphlets.
It was the start of a remarkable second career. Through the controversy he became close to James Mill, who set him writing tasks like a schoolmaster, and to Thomas Malthus, then Britain's foremost economist. Ricardo went on to publish his Principles of Political Economy and Taxation in 1817, one of the founding works of economics. His plan to make banknotes convertible into gold ingots rather than coins was adopted when Britain resumed cash payments in 1821, and he argued firmly for an independent central bank as the issuer of money.
His central lesson, that money issued without discipline loses its value and erodes people's savings, became a basic principle of monetary policy.
Why it matters
Ricardo's analysis of how over-issuing money erodes its value became a basic lesson for central banks seeking to protect people's savings from inflation.
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 proved that trade can benefit every nationIn his 1817 Principles, David Ricardo introduced comparative advantage, showing that two countries gain from trade even if one is better at producing everything.
- 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
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.