David Ricardo

David Ricardo (April 18, 1772 ? September 11, 1823), a British political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists. He was also a successful businessman, financier and speculator, and amassed a considerable fortune.

Ideas

Ricardo's most famous work is his Iron law of wages, a document which shows his capitalist tendencies. In this book Ricardo states that the wages of 19th century British workers should not be increased, though it was encouraged greatly by the masses. This was due to his observation of the direct link evident between money and population. An increase in income of workers equals an increase in children, resulting in a larger workforce. Such an increase means that employers will be forced to lower wages as their working population grows exponentially. Also, the surplus of workers and lower wages will combine to create a greater state of poverty that existed before wages were originally raised. Ultimately, he favoured employers far more than workers, in contrast to the philosophy adopted by Karl Marx.

Related Topics:
Iron law of wages - Karl Marx

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Also important was Ricardo's work on the concept of comparative advantage. According to Ricardo's theory, even if a country could produce everything more efficiently than another country, it would reap gains from specializing in what it was best at producing and trading with other nations. Comparative advantage forms the basis of modern trade theory.

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Like Adam Smith, Ricardo was also an opponent of protectionism for national economies. He believed that protectionism led towards economic stagnation, and that protectionism by more economically productive countries doomed less developed countries to stagnation. He also influenced generations of later economists in the belief that protectionism is bad for the economy.

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Ricardo is also known for his opposition to the "corn laws", which protected British landowners from foreign competition by guaranteeing them a high price for their produce. Ricardo did not actually argue the case out of compassion to the peasants or general population (who were starving, due to insufficient production), but felt that this was unfairly diverting a lot of resources from the bourgeoisie (seen as a force of progress) towards the landowners. Unfortunately, he was unable to get Parliament to remove the law, which it later repealed in 1846.

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Other ideas associated with Ricardo:

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• Ricardian equivalence, an argument suggesting that in some circumstances a government's choice of how to pay for its spending (ie, whether to use tax revenue or issue debt and run a deficit) might have no effect on the economy. Ironically, while the proposition bears his name, he does not seem to have believed it. Robert Barro is responsible for its modern prominence.
• The iron law of wages, which asserted that real income of workers would remain near the subsistence level, despite any attempts to raise wages.