Ricardo

Name: David Ricardo

Achievements: His analysis of the labour/capital process of production.

Born: April 19, 1771; London, England

Died: September 11, 1823; Gatcombe Park, Gloucestershire, England (Aged 52)

Field & Discipline: Politics; Economics; Economist

Language: English.

Father: Abraham Ricardo (Stockjobber, City of London)

Mother: Abigail

Siblings: Joseph; Abraham; Isaac; Moses; Jacob; Daniel; Raphael; Benjamin; Samson; Solomon; Hannah; Rebecca; Abigail; Rachel; Esther; Sarah

Spouse: Priscilla Wilkinson

Children: Osman; Henrietta; Priscilla; Fanny; David; Mary; Mortimer; Birtha

Education: Parish school, London; Jewish school, Amsterdam

Major Work:

"Principles of Political Economy and Taxation" (1817)

Life & Times:

From 1793-1806 Ricardo was a stock-jobber, mostly trading for himself in the Government market. The war against France began in 1793 and one of the ways that the government funded its war chest was by issuing loans.  Ricardo was exceptionally good at gauging how the market might react to each new government loan.

At end of 1799, the Ricardo’s fourth child was stillborn so he  took his wife to Bath to recover. In the library at Bath, Ricardo read "The Wealth of Nations" by the philosopher [inspired by] Adam Smith* and it was this treatise which triggered Ricardo's own interest in political economy.

In 1801, the Ricardo’s moved back to London. Ricardo was appointed to the Committee of Proprietors who managed the exchange.  From 1803, he was also a highly successful loan contractor.

In 1797, the country had switched to paper currency.  Prices had risen and the value of the pound had fallen.  The Bank of England maintained that rising prices and a falling pound were not connected to the issue of paper money. 

Ricardo supported paper currency as long as its issue was controlled and as long as it was ultimately redeemable in gold bullion.  In his article, Ricardo argued that the declining value of banknotes was due to excessive note issue because with no requirement to redeem in bullion the banks approved more leans and printed money to cover them. This had caused inflation.

In 1810, Ricardo developed this argument in his first book:  "The High Price of Bullion. A Proof of the Depreciation of Banknotes.”   Parliament set up a Select Committee to study the matter and the committee, which became known as the Bullion Committee, endorsed Ricardo's views.

Around this time, Ricardo met [met] James Mill*, the philosopher and Utilitarian, and at the end of 1810, Mill sent him some papers which [read work of] Jeremy Bentham* had written on the subject of money. 

About a year later, in 1811, Ricardo started a correspondence with [corresponded with] Malthus*, the economist,  in which they discussed whether political economy was a pure science or a social science.   Ricardo’s theories became increasingly abstract.

In 1812, the Ricardo's moved to fashionable Upper Brook Street, off Grosvenor Square, to a house standing on land now occupied by the American embassy, where Ricardo held “economic breakfasts.” 

Ricardo then bought a part of the mews opposite and rebuilt the coachhouse and stables.  56 Upper Brook Street was now one of the most magnificent houses in London.  In addition to this, he had also bought a country house, Gatcombe Park, in Gloucestershire.

In 1815, after Napoleon escaped from Elba, Britain was again at war with

France and the government needed to raise a huge loan, primarily to meet the country’s obligation to pay five million pounds into the Allied Powers’ war chest.   Eventually the size of the loan needed was calculated and the contracts for the loan signed on June 14th.

The battle of Waterloo was fought on June 18^th and news of the allied victory came on the 20^th.  Within a fortnight of the loan being issued, its premium rose from 3% to 13%.  David Ricardo’s investment in the loan bonds had made him a fortune and he decided to withdraw from business on the Stock Exchange.

In 1815 he published his "Essay on the Influence of a Low Price of Corn on the Profits of Stock.”  The Corn Laws, by which the import and export of wheat was controlled, were a constant source of debate in the first half of the nineteenth century and when the government raised the tariff on imported wheat there was a fresh outburst of controversy.

Ricardo believed that raising the tariff on imports was profitable for country landowners but bad financially for manufacturers. Ricardo ended his essay:  "It follows then, that the interest of the landlord is always opposed to the interest of every other class in the community.”

Adam Smith had written about what constituted the wealth of a nation and in

"Principles of Political Economy and Taxation,” published in 1817, Ricardo wrote about the laws governing the distribution of that wealth among the "three classes of the community":  landowners’ rents,  capitalists’ profit,  workers’ wages.

Ricardo stated that profits could only be raised by a fall in wages,  that profits would fall when wages were raised,  and that wages were determined by the necessities of life. The price of commodities depended on the amount of labor needed to produce them.  In sum: the demand for food determines the margin of cultivation.  This margin determines rent. 

The amount necessary to maintain the laborer determines wages.  The difference between the amount produced by a given quantity of labor at the margin and the wages of that labor determines profit.   He therefore believed that the population should not expand too fast,  because that would depress wages to subsistence level,  and increasing the margin of cultivation.

He also concluded that a tax on raw produce falls on the consumer, but will also diminish profits;   a tax on rents falls on the landlord;  a tax on wages falls on the capitalist;  and a tax on houses falls on both the occupier and the ground landlord.

Ricardo's most controversial statement was that "the opinion entertained by the laboring class that the employment of machinery is detrimental to their interests is not founded upon prejudice or error, but is conformable to the correct principles of political economy.”   

This statement implied support for the [supported] Luddites*, who feared the threat to their labor by machines.

In 1819, Ricardo became a Member of Parliament, having, as was customary, bought his parliamentary seat.   He continued to press for free trade and to maintain the need for a currency that was "in the last resort redeemable in gold.”

In June of the same year he was a member of a committee, appointed by a public meeting, to examine the ideas of the philanthropist [backed plan of] Robert Owen*.  Ricardo did not support Owen, but gave his backing to a plan to enable the poor to buy annuities.

In 1822, the Ricardo family toured on the Continent for five months where they traveled down the Rhine into Switzerland and then into Italy.

Ricardo died in 1823 from complications arising from an ear infection.

Assessment:  The first economist to systematize his theories.

Oneliner:  David Ricardo, the first economist to systematize his theories.

Bibliography:

• Henderson John P and Davis John B, The Life and Economics of David Ricardo, Kluwer Academic Publishers, Norwell, Mass., 1997.