- Person
- David Ricardo
- Lived
- 1772–1823
- Field
- Economics and finance
- From
- British
The story
As Britain's population grew in the early 1800s, farmers had to cultivate poorer and poorer land. Parliament was debating the Corn Laws, which restricted imports of grain, and David Ricardo asked who gained from this process. His answer, set out in his 1815 Essay on Profits and in his Principles of Political Economy and Taxation of 1817, became one of the central ideas of economics.
He defined rent as the difference between the produce obtained by employing equal quantities of capital and labour on different land. He illustrated it with three fields. At first only the most fertile, field No. 1, is farmed. As population and the demand for food grow, the less fertile field No. 2 must be brought into use, and then No. 3, each yielding less for the same effort. The owners of the better land can then charge rent equal to the extra yield of their fields, collecting more without doing anything extra.
Ricardo concluded that this kind of economic development principally benefited landowners, while profits for productive business shrank. He tied rent to wages and profits in a single system: in his words, profits depend on high or low wages, wages on the price of necessaries, and the price of necessaries chiefly on the price of food. Higher rents and food prices therefore squeezed the profits that funded investment. This reasoning underpinned his campaign against the Corn Laws, which he believed pushed cultivation onto poor land and drove rents up.
The idea had a long afterlife. The American reformer Henry George was greatly influenced by Ricardo and often cited him, including in Progress and Poverty, published in 1879, which argued that rent belongs to the community as a whole. His followers, known as Georgists, still hold that view. Early socialists in the 1820s also drew radical conclusions from Ricardo's theories of value and distribution, and in the twentieth century Piero Sraffa's edition of Ricardo's works inspired a neo-Ricardian school of economists.
Economists today still speak of economic rent to describe income earned from owning scarce resources rather than from productive effort.
Why it matters
Ricardo's theory of rent gave reformers a tool for asking who benefits from land and growth, shaping debates on taxation and inequality ever since.
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 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 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
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