David Ricardo

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David Ricardo, portrait by Thomas Phillips, 1821; in the National Portrait Gallery, London.

Courtesy of The National Portrait Gallery, London

David Ricardowas an English economist who gave systematized, classical form to the rising science of economics in the 19th century. His laissez-faire doctrines were typified in his Iron Law of Wages, which stated that all attempts to improve the real income of workers were futile and that wages perforce would remain near the subsistence level.

Ricardo was the third son born to a family of Sephardic Jews who had emigrated from the Netherlands to England. At the age of 14 he entered into business with his father, who had made a fortune on the London Stock Exchange. By the time he was 21, however, he had broken with his father over religion, become a Unitarian, and married a Quaker. He continued as a member of the stock exchange, where his talents and character won him the support of an eminent banking house. He did so well that in a few years he acquired a fortune, which allowed him to pursue interests in literature and science, particularly in the fields of mathematics, chemistry, and geology.

Ricardo’s interest in economic questions arose in 1799 when he read An Inquiry into the Nature and Causes of the Wealth of Nations (1776), by the Scottish economist and philosopher Adam Smith. For 10 years he studied economics, somewhat offhandedly at first and then with greater concentration. His first published work was The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810), an outgrowth of letters Ricardo had published in the Morning Chronicle the year before. His book refueled the controversy then surrounding the Bank of England: freed from the necessity of cash payment (strains from the wars with France prompted the government to bar the Bank of England from paying its notes in gold), both the Bank of England and the rural banks had increased their note issues and the volume of their lending. The directors of the Bank of England maintained that the subsequent increase in prices and the depreciation of the pound had no relation to the increase in bank credit. Ricardo and others, however, asserted that there indeed was a link between the volume of bank notes and the level of prices. Furthermore, they argued that the price levels in turn affected foreign exchange rates and the inflow or outflow of gold.

It followed, then, that the bank, as custodian of the central gold reserve of the country, had to shape its lending policy according to general economic conditions and exercise control over the volume of money and credit. The controversy was therefore critical to the development of theories concerning central banking. A committee appointed by the House of Commons, known as the Bullion Committee, confirmed Ricardo’s views and recommended the repeal of the Bank Restriction Act.

At this time Ricardo began to acquire friends who influenced his further intellectual development. One of these was the economist James Mill (father of the philosopher John Stuart Mill), who became his political and editorial counselor. Another friend was the utilitarian philosopher Jeremy Bentham. Still another was Thomas Malthus, best known for his theory that population tends to increase faster than the food supply—an idea that Ricardo accepted.

(Read Thomas Malthus’s 1824 Britannica essay on population.)

In 1815 another controversy arose over the Corn Laws, which regulated the import and export of grain. A decline in wheat prices had led Parliament to raise the tariff on imported wheat. This provoked a popular outcry and caused Ricardo to publish his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), in which he argued that raising the tariff on grain imports tended to increase the rents of the country gentlemen while decreasing the profits of manufacturers. One year before his Corn Law essay, at the age of 42, he had retired from business and taken up residence in Gloucestershire, where he had extensive landholdings.

Later, in Principles of Political Economy and Taxation (1817), Ricardo analyzed the laws determining the distribution of everything that could be produced by the “three classes of the community”—namely, the landlords, the workers, and the owners of capital. As part of his theory of distribution, he concluded that profits vary inversely with wages, which rise or fall in line with the cost of necessities. Ricardo also determined that rent tends to increase as population grows, owing to the higher costs of cultivating more food for the larger population. He supposed that there was little tendency to unemployment, but he remained guarded against rapid population growth that could depress wages to the subsistence level, which would thereby limit both profits and capital formation by extending the margin of cultivation. He also concluded that trade between countries was influenced by relative costs of production and by differences in internal price structures that could maximize the comparative advantages of the trading countries.

Although he built in part upon the work of Smith, he defined the scope of economics more narrowly than had Smith and included little explicit social philosophy. In 1819 Ricardo purchased a seat in the House of Commons, as was done in those times, and entered Parliament as a member for Portarlington. He was not a frequent speaker, but so great was his reputation in economic affairs that his opinions on free trade were received with respect, even though they did not represent the dominant thinking in the House. Illness forced Ricardo to retire from Parliament in 1823. He died that year at the age of 51.

Despite his relatively short career and the fact that most of it was preoccupied with business affairs, Ricardo achieved a leading position among the economists of his time. His views won considerable support in England despite the abstract style in which he set them forth and in the face of heavy counterfire from his opponents. Although his ideas have long since been superseded or modified by other work and by new theoretical approaches, Ricardo retains his eminence as the thinker who first systematized economics. He also treated monetary questions and taxation at length. Writers of various persuasions drew heavily upon his ideas, including those who favoured laissez-faire capitalism and those, such as the German philosopher and economist Karl Marx and the British social reformer Robert Owen, who opposed it.

Ricardo’s Works and Correspondence, 10 vol., were edited by Piero Sraffa and M.H. Dobb (1951–55). His Principles of Political Economy and Taxation have appeared in several editions, including Everyman’s Library. A good introduction to Ricardo is J.H. Hollander, David Ricardo: A Centenary Estimate (1910, reprinted 1960). A guide to Ricardo’s opinions on economic matters is Oswald St. Clair, A Key to Ricardo (1957). For the serious student, two books by Mark Blaug are to be recommended: Ricardian Economics: A Historical Study (1958), covering the rise and fall of Ricardian economics in the first half of the 19th century; and Economic Theory in Retrospect, rev. ed. (1968), which contains a treatment of Ricardo’s system in modern analytical terms, as well as further bibliographical references. John P. Henderson, The Life and Economics of David Ricardo, with supplemental chapters by John B. Davis, ed. by Warren J. Samuels and Gilbert B. Davis (1997), is a comprehensive intellectual biography.