David Ricardo
David Ricardo (1772-1823) Born in Gloucestershire, United Kingdom a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists. Ricardo's work with the stock exchange made him quite wealthy, which allowed him to retire from business in 1814 at the age of 42.
At age 14, after a brief schooling in Holland, Ricardo joined his father at the London Stock Exchange, where he began to learn about the workings of finance. This beginning set the stage for Ricardo's later success in the stock market and real estate. Ricardo became interested in economics after reading Adam Smith's The Wealth of Nations in 1799 on a vacation to the English resort of Bath. This was Ricardo's first contact with economics. He wrote his first economics article at age 37 and within another ten years he reached the height of his fame. Ricardo was a close friend of James Mill, who encouraged him in his political ambitions and writings about economics.
Ricardo's most famous work is his Principles of Political Economy and Taxation. Ricardo opens the first section with a statement of the labor theory of value. Later in this section, he demonstrates that prices do not correspond to this value. He retained the theory, however, as an approximation. Ricardo continued to work on his value theory to the end of his life.
Another idea associated with Ricardo is Ricardian equivalence, an argument suggesting that in some circumstances a government's choice of how to pay for its spending (i.e., 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. Economist Robert Barro is responsible for its modern prominence.
Ricardo is responsible for developing theories of rent, wages, and profits. He defined rent as the difference in the costs of the production between different tracts of land. The model for this theory basically said that while only one grade of land is being used for cultivation, rent will not exist, but when multiple grades of land are being utilized, rent will be charged on the higher grades and will increase with the ascension of the grade. As such, Ricardo believed that the process of economic development, which increased land utilization and eventually led to the cultivation of poorer land, benefited first and foremost the landowners because they would receive the rent payments either in money or in product.
In his Theory of Profit, Ricardo stated that as real wages increase, real profits decrease because the revenue from the sale of manufactured goods is split between profits and wages. He said in his Essay on Profits "Profits depend on high or low wages, wages on the price of necessaries, and the price of necessaries chiefly on the price of food."
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