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David Ricardo

British political economist, broker and politician (1772-1823)

David Ricardo (19 April 1772 – 11 September 1823) was an English political economist, often credited with systematizing economics, and was one of the most influential of the classical economists. He was also a member of Parliament, businessman, financier and speculator.

"For price is everywhere regulated by the return obtained by this last portion of capital, for which no rent whatever is paid."
- David Ricardo, 1821
Works, 1852

Quotes

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  • Money is neither a material to work upon nor a tool to work with.
    • The High Price of Bullion (1810) [1]
  • A merchant trading with capital has been injured by the depreciation of money, as his capital has not been equal to the same extent of business as before the depreciation; but there are few merchants in this situation:—their capitals, as well as that of tradesmen, are invested in goods, ships, &c. they are rather debtors than creditors to the rest of the community... the prices of their commodities will undergo the same variations as the prices of all others, their comparative value will... be the same... The depreciation of the circulating medium has been more injurious to monied men... It may be laid down as a principle of universal application, that every man is injured or benefited by the variation of the value of the circulating medium in proportion as his property consists of money, or as the fixed demands on him in money exceed those fixed demands which he may have on others. Thus the farmer is injured by any increase in the value of money... whilst he has a fixed money rent, and fixed money taxes to pay. His produce... will sell for less, whilst his taxes and rent continue the same. ...He, more than any other class of the community, is benefited by the depreciation of money, and injured by the increase of its value.
    • Letter to the Editor, Morning Chronicle (Sep 6, 1810) as quoted in "Report of the Bullion Committee, The Works and Correspondence of David Ricardo (1962) Cambridge at the University Press for the Royal Economic Society, Vol. III, Pamphlets and Papers 1809-1811, p. 136.
  • Sufficiently rich to satisfy all my desires and the reasonable desires of all those about me.

The Principles of Political Economy and Taxation (1821) (Third Edition)

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  • The produce of the earth - all that is derived from its surface by the united application of labour, machinery, and capital, is divided among three classes of the community, namely, the proprietor of the land, the owner of the stock or capital necessary for its cultivation, and the labourers by whose industry it is cultivated.
    • Original Preface, p. 1
  • Adam Smith, and other able writers to whom I have alluded, not having viewed correctly the principles of rent, have, it appears to me, overlooked many important truths, which can only be discovered after the subject of rent is thoroughly understood.
    • Original Preface, p. 1
  • I have endeavoured to show that the ability to pay taxes depends, not on the gross money value of the mass of commodities, nor on the net money value of the revenue of capitalists and landlords, but on the money value of each man's revenue compared to the money value of the commodities which he usually consumes.
    • Advertisement To The Third Edition, p. 3
  • Utility then is not the measure of exchangeable value, although it is absolutely essential to it.
    • Chapter I, Section I, On Value, p. 5
  • Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them.
    • Chapter I, Section I, On Value, p. 5
  • If I have to hire a labourer for a week, and instead of ten shillings I pay him eight, no variation having taken place in the value of money, the labourer can probably obtain more food and necessaries with his eight shillings than he before obtained for ten: but this is owing, not to a rise in the real value of his wages, as stated by Adam Smith, and more recently by Mr. Malthus, but to a fall in the value of the things on which his wages are expended, things perfectly distinct; and yet for calling this a fall in the real value of wages, I am told that I adopt new and unusual language, not reconcilable with the true principals of the science. To me it appears that the unusual and, indeed, inconsistent language is that used by my opponents.
    • Chapter I, Section I, On Value, p. 11
  • The wheat bought by a farmer to sow is comparatively a fixed capital to the wheat purchased by a baker to make into loaves.
    • Chapter I, Section IV, On Value, p. 19
  • Neither machines, nor the commodities made by them, rise in real value, but all commodities made by machines fall, and fall in proportion to their durability.
    • Chapter I, Section V, On Value, p. 26
  • The variation in the value of money, however great, makes no difference in the rate of profits;...
    • Chapter I, On Value, p. 32
  • Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.
    • Chapter II, On Rent, p. 33
  • Population regulates itself by the funds which are to employ it, and therefore always increases or diminishes with the increase or the diminution of capital. Every reduction of capital is therefore necessarily followed by a less effective demand for corn, by a fall in price, and by diminished cultivation.
    • Chapter II, On Rent, p. 41
  • If I discover a manure which will enable me to make a piece of land produce 20 per cent more corn, I may withdraw at least a portion of my capital from the most unproductive part of my farm.
    • Chapter II, On Rent, p. 43
  • It has therefore been justly observed that however honestly the coin of a country may conform to its standard, money made of gold and silver is still liable to fluctuations in value, not only to accidental, and temporary, but to permanent and natural variations, in the same manner as other commodities.
    • Chapter III, On the Rent of Mines, p. 47
  • LABOUR, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labour is that price which is necessary to enable the labourers, on with another, to subsist and to perpetuate their race, without either increase or diminution.
    • Chapter V, On Wages, p. 52
  • The farmer and manufacturer can no more live without profit than the labourer without wages.
    • Chapter VI, On Profits, p. 73
  • No extension of foreign trade will immediately increase the amount of value in a country, although it will very powerfully contribute to increase the mass of commodities and therefore the sum of enjoyments.
    • Chapter VII, On Foreign Trade, p. 77
  • Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world.
  • If capital freely flowed towards those countries where it could be most profitably employed, there could be no difference in the rate of profit, and no other difference in the real or labour price of commodities, than the additional quantity of labour required to convey them to the various markets where they were to be sold. Experience, however, shews, that the fancied or real insecurity of capital, when not under the immediate control of its owner, together with the natural disinclination which every man has to quit the country of his birth and connexions, and intrust himself with all his habits fixed, to a strange government and new laws, check the emigration of capital. These feelings, which I should be sorry to see weakened, induce most men of property to be satisfied with a low rate of profits in their own country, rather than seek a more advantageous employment for their wealth in foreign nations.
    • Chapter VII, On Foreign Trade, p. 83
  • Every transaction in commerce is an independent transaction.
    • Chapter VII, On Foreign Trade, p. 85
  • Whenever the current of money is forcibly stopped, and when money is prevented from settling at its just level, there are no limits to the possible variations of the exchange.
    • Chapter VII, On Foreign Trade, p. 91
  • If English money was of the same value then as before, Hamburgh money must have risen in value. But where is the proof of this?
    • Chapter VII, On Foreign Trade, p. 93
  • There can be no greater error then in supposing that capital is increased by non-consumption.
    • Chapter VIII, On Taxes, Foot note 1, p. 94
  • The demand for money is regulated entirely by its value, and its value by its quantity.
    • Chapter XIII, Taxes on Gold, p. 123
  • But it is clear that the price of labour has no necessary connection with the price of food, since it depends entirely on the supply of labourers compared with the demand.
    • Chapter XVI, Taxes on Wages, p. 141
  • But a tax on luxuries would no other effect than to raise their price. It would fall wholly on the consumer, and could neither increase wages nor lower profits.
    • Chapter XVII, Taxes on Other Commodities, p. 161 (see also.. Consumption Tax)
  • If a tax on malt would raise the price of beer, a tax on bread must raise the price of bread.
    • Chapter XVII, Taxes on Other Commodities, p. 168
  • A BOUNTY on the exportation of corn tends to lower its price to the foreign consumer, but it has no permanent effect on its price in the home market.
    • Chapter XXII, Bounties and Prohibitions, p. 201
  • " for price is everywhere regulated by the return obtained by this last portion of capital, for which no rent whatever is paid.
    • Chapter XXIV, The Rent of Land, p. 220
  • Whether a bank lent one million, ten million, or a hundred millions, they would not permanently alter the market rate of interest; they would alter only the value of the money they issued.
    • Chapter XXVII, Currency and Banks, p. 246
  • The opinions that the price of commodities depends solely on the proportion of supply and demand, or demand to supply, has become almost an axiom in political economy, and has been the source of much error in that science.
    • Chapter XXX, Influence of Demand and Supply, p. 260
  • I have already expressed my opinion on this subject in treating of rent, and have now only further to add, that rent is a creation of value, as I understand that word, but not a creation of wealth.
    • Chapter XXXII, Malthus on Rent, p. 273
  • The price of corn will naturally rise with the difficulty of producing the last portions of it,...
    • Chapter XXXII, Malthus on Rent, p. 276
  • It has been my endeavour to show in this work that a fall of wages would have no other effect than to raise profits.
    • Chapter XXXII, Malthus on Rent, p. 281
  • To alter the money value of commodities, by altering the value of money, and yet to raise the same money amount by taxes, is then undoubtedly to increase the burthens of society.
    • Chapter XXXII, Malthus on Rent, p. 288
  • Mr. Malthus says, " It has been justly observed by Adam Smith that no equal quantity of productive labour employed in manufactures can ever occasion so great a reproduction as in agriculture. " If Adam Smith speaks of value, he is correct; but if he speaks of riches, which is the important point, he is mistaken; for he has himself defined riches to consist of the necessaries, conveniences, and enjoyments of human life. One set of necessaries and conveniences admits of no comparison with another set; value in use cannot be measured by any known standard; it is differently estimated by different persons.
    • Chapter XXXII, Malthus on Rent, p. 292

Quotes about Ricardo

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  • Ricardo's theory is absolutely right—within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at. One cannot argue with that.
    His theory fails when a country wants to acquire more advanced technologies so that it can do more difficult things that few others can do—that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo's theory is, thus seen, for those who accept the status quo but not for those who want to change it.
  • The factors left out of the Ricardian equation are falling wages and idle capacity.
  • Close on a century after the event, this interpretative error re-evokes the error Marshall made in relation to the theory of Ricardo, and of the classical economists in general. Marshall, as we well know, held that they were aware of only one of the two blades of the scissors determining price –the supply side, but not the demand side. In this case, too, classical analysis was rendered comparable to the analysis in terms of demand and supply equilibrium by introducing the assumption of constant returns. Such an assumption, however, cannot be held to represent a general constitutive element of classical analysis: classical economists had quite different ideas on returns to scale, and moreover conceived them in the context of a dynamic analysis. Let us recall, for example, Smith’s ideas about the relationship connecting division of labour (and hence productivity) to the size of the market, or the role played by decreasing returns in agriculture in the analyses of Malthus, West, Torrens, Ricardo and a host of others.
    Sraffa, who in his critical edition of Ricardo’s Works and Correspondence had, among other things, also disputed Marshall’s interpretation, foresaw quite clearly that the same error would once again crop up in connection with his own analysis. Indeed, he appeared ready to accept the inevitable, though up to a point.
    • Alessandro Roncaglia, Piero Sraffa: His life, thought and cultural heritage (2000), Ch. 2. Production of Commodities by Means of Commodities
  • Marx's economic teachings are essentially a garbled rehash of the theories of Adam Smith and, first of all, of Ricardo.
    • Ludwig von Mises (1957), Theory and History: An Interpretation of Social and Economic Evolution
  • Ricardo existed at a particular point when English history was going round a corner so sharply that the progressive and the reactionary positions changed places in a generation. He was just at the corner where the capitalists were about to supersede the old landed aristocracy as the effective ruling class. Ricardo was on the progressive side. His chief pre-occupation was to show that landlords were parasites on society. In doing so he was to some extent the champion of the capitalists. They were part of the productive forces as against the parasites. He was pro-capitalist as against the landlords more than he was pro-worker as against capitalists (with the Iron Law of Wages, it was just too bad for the workers, whatever happened).
    • Joan Robinson, "An open letter from a Keynesian to a Marxist" (1953)
  • Ricardo himself was too conscientious. He hated having to fiddle the assumptions. Right up to his dying day he was looking for the assumption, that would not need to be fiddled.
    • Joan Robinson, Contributions to Modern Economics, Chapter 13, p. 145 (italics as per text...)
  • David Ricardo is without doubt the greatest representative of classical political economy. He carried his work begun by Smith to the farthest point possible without choosing one or the other of the roads which led out of the contradiction inherent in it.
    • Eric Roll, A History Of Economic Thought, Chapter IV, p. 176
  • Adam Smith had a powerful influence on the history of ideas, ideas of the educated non-economist public and most particularly of governmental policy-makers and their voter constituencies. David Ricardo’s great influence was more narrowly focused on contemporaneous and subsequent economists. Macaulay’s general schoolboy knew The Wealth of Nations but not Ricardo’s Principles of Political Economy.
    So to speak, Smith paid for his popularity with the lay public by being regarded among professional economists as ‘old hat’ and a bit prosaically eclectic. Ricardo, by contrast, wrote so badly as to provide that quantum of obscurity sufficient to evoke academic attention and overestimation. Karl Marx, it may be said, shared in the Ricardian tradition in more ways than is conventionally recognized.
    As I reflect back upon what seems to have been a systematic undervaluation of Adam Smith in professional circles of six decades ago, I discern that a major responsibility for this lies with two scholars. It was David Ricardo himself who believed that Adam Smith’s basic system was flawed at its core. Indeed, it was this critical view of Smith that caused Ricardo to write his Principles. The economists’ world, blinded by Ricardo’s reputation for brilliance and unable to recognize in his murky exposition the many non sequiturs contained there, accepted Ricardo’s indictment at its face value.
    The second authority influential in playing down Smith’s worth was my old master, Joseph Schumpeter. Long before the Harvard days of his greatest reputation, the young Schumpeter’s brilliant German work, Economic Doctrine and Method (1914), had patronized Smith with faint praise. Never did Schumpeter really alter this evaluation, as his posthumous classic of 1954 makes clear. Schumpeter seems to put ahead of Smith as a theorist such predecessors as Cantillon, Hume and Turgot; and subsequent to him, Schumpeter would surely have regarded as Smith’s superiors such diverse scholars as A.A.Cournot, Léon Walras, and (I vaguely remember from Schumpeter’s 1935 Harvard lectures) Alfred Marshall. Whereas Ricardo regarded Smith as having defected from a proper labour theory of value, in Schumpeter’s eyes Smith’s crime was that of mediocrity, lack of originality, and excessive imitativeness. (When my colleague Robert L.Bishop prepared a definitive debunking of Ricardo’s critique of Smith, he informed me that Schumpeter paradoxically proved to be one of the few scholars who correctly recognized Ricardo’s lack of cogency and who defended Smith for his full due.)
    • Paul A. Samuelson, "The Overdue Recovery of Adam Smith's Reputation as an Economic Theorist", in M. Rey (ed.,), Adam Smith's Legacy (1992)
  • Ricardo does understand, and better than Smith, that a good’s price is proportional to its marginal labour cost. But that saves only the face of his verbalistic labour theory of value and not his substantive theory. As soon as changed composition of demand for goods alters endogenously marginal labour embodiments, nothing substantive is left of the labour theory of value.
    • Paul A. Samuelson, "The Overdue Recovery of Adam Smith's Reputation as an Economic Theorist", in M. Rey (ed.,), Adam Smith's Legacy (1992)
  • It is, perhaps, a well founded objection to Mr. Ricardo, that he sometimes reasons upon abstract principles to which he gives too great a generalization.
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