David Ricardo

David R. Stead, University of York

David Ricardo (1772-1823) was one of the greatest theoretical economists of all time. The third child of Abigail and Abraham (a prosperous Jewish stockbroker who had emigrated to London from Holland), Ricardo attended school in London and Amsterdam and at the age of fourteen entered his father’s business. In 1793 he married a Quaker, Priscilla Wilkinson, with whom he was to have eight children. The couple’s different religious backgrounds meant that the marriage created a rift with both their families, and Ricardo was forced to set up independently as a broker on the London Stock Exchange. Ricardo, though, prospered in the financial business to a far greater extent than his father, amassing a fortune of about £700,000 (equivalent to approximately £40 million today).

Ricardo became interested in economics in 1799 after, apparently by chance, reading the work of Adam Smith. He subsequently published pamphlets and articles analyzing various economic problems of the day, including the stability of the currency and the national debt. After some struggle (“I fear the undertaking exceeds my powers,” he wrote), his classic work, The Principles of Political Economy, appeared in 1817. Two of Ricardo’s most important contributions were the theory of rent and the concept of comparative advantage. The former, which drew on the writings of (among others) his close friend and critic Robert Malthus, defined rent as “that portion of the produce of the earth which is paid to the landlord [by the tenant farmer] for the use of the original and indestructible powers of the soil.” Rent, Ricardo argued, is what remains from gross farm revenue after all the farmer’s production costs have been paid, including remuneration for the capital and labor he had expended on the land. It is an unearned surplus (now referred to as an economic rent) in that its payment is not necessary to ensure a supply of farmland. For Ricardo, rent arises from the advantages that one site has over another due to differing degrees of soil fertility: rent per acre is highest on the most fertile land, and declines to zero on the worst quality soil.

Comparative advantage, Ricardo believed, ensured that international trade would bring benefits for all countries; his theory remains the foundation of the economic case for free trade today. He argued that each country should specialize in making the products in which it possessed a comparative advantage, that is could produce relatively efficiently. Portuguese sunshine, for example, gave Portuguese entrepreneurs a comparative advantage in producing wine, whereas England’s wet climate meant that her comparative advantage was in making cloth. Ricardo showed that, by specializing in production and then trading, Portugal and England would each achieve greater consumption of both wine and cloth than in the absence of international trade.

Not surprisingly, then, Ricardo opposed the protectionist Corn Laws in place during his lifetime, and upon retiring from the Stock Exchange in 1819, made his case directly to the House of Commons as the member for Portarlington, a pocket borough in Ireland. Ricardo’s Parliamentary career was influential but brief: four years later he died suddenly after contracting an ear infection.

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