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.
Born in London to a large Jewish family, Ricardo made his fortune when a relatively young man as a stockbroker on the London Stock Exchange. He was a speculator par excellence, allegedly making a million pounds sterling in 1 day following the Battle of Waterloo. In 1815, he purchased a large estate called Gatcomb Park in Gloucestershire and devoted the remainder of his life to intellectual interests. In 1819, he was elected to Parliament. Four years later, at the age of 51, he died suddenly of an ear infection.
In the 1810s, Ricardo wrote a series of essays and books promoting laissez‐faire. 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. Ricardo’s hard‐money views eventually led to England adopting the classical gold standard and 100% reserve gold backing of its currency, with the Peel Act of 1844. He vigorously attacked the Corn Laws, England’s notorious high tariff wall on wheat and other agricultural goods, which was ultimately repealed in 1846. He made profound contributions to economics, including the laws of comparative advantage, diminishing returns, and the quantity theory of money.
He is considered the inventor of abstract model building in economics, creating a mathematical model with a few simple variables, a technique used later by such diverse economists as Karl Marx, John Maynard Keynes, Paul Samuelson, and Milton Friedman.
But it was this abstract reasoning that also has been called the “Ricardian Vice.” In his work On the Principles of Political Economy and Taxation (1817), Ricardo created an oversimplified “corn” model that led to an antagonistic view of capitalism, where values are determined by labor inputs and where wages can only increase at the expense of profits. His analysis of the nature of production concluded that wages tend toward subsistence levels, known as the iron law of wages. Ricardo thought that over time, as the population grew, an increased demand for food would have the natural effect of raising its price, which would lead to an increase in the value of labor. Yet any increase in the value of labor, Ricardo concluded, must invariably lead to a fall in profits. Ricardo’s dismal science, together with the doctrines of his friend, Thomas Malthus, moved economics away from Adam Smith’s invisible hand with its harmony of interests and onto a path of class antagonism and exploitation, giving ammunition to socialist and Marxist causes.
Ricardo, David. On the Principles of Political Economy and Taxation. Piero Sraffa, ed. Cambridge: Cambridge University Press, 1951 .
Rothbard, Murray N. Classical Economics. Hants, UK: Edward Elgar, 1995.
Skousen, Mark. The Making of Modern Economics. New York: M. E. Sharpe, 2001.
St. Clair, Oswald. A Key to Ricardo. New York: A. M. Kelley, 1965.