The Fruits of Civilization (27-6) David Ricardo

David Ricardo

Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them. ~ David Ricardo

English political economist David Ricardo (1772–1823) was a businessman, politician, financier, and speculator who amassed a sizable personal fortune: more than $120 million in today’s dollars.

Ricardo’s most notable speculative feat was betting on French defeat at Waterloo (1815) by buying British government bonds. Ricardo used insider information and a false market panic that he helped orchestrate to maximize his return.

Ricardo’s most famous work was On the Principles of Political Economy and Taxation (1817). He opens his book with a rough labor theory of value.

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or lesser compensation which is paid for that labour. ~ David Ricardo

Yet later in the 1st chapter of the book, Ricardo shows that product prices do not correspond to labor value.

Thoughtlessly consistent with the general economic thinking of his day, which assumed a scarcity of resources, Ricardo believed that the global sum total of wealth was fixed. The seeming appearance of growing wealth is offset by price increases. This renders macroeconomic growth as a form of wealth distribution.

The improvement of a manufacture in any country tends to alter the distribution of the precious metals amongst the nations of the world: it tends to increase the quantity of commodities, at the same time that it raises general prices in the country where the improvement takes place. ~ David Ricardo

From this hokey hypothetical underpinning, Ricardo, like most economists in the 16th to mid-18th centuries, advocated mercantilism. But he put a twist to the notion, by arguing that countries could benefit from comparative advantage: profiting from trade by relative productivity. Countries should export what they are good at making and import what others do better.

As a facilely rigorous logical thinker with apparent mastery of complexity, Ricardo was highly influential. Schumpeter called this the Ricardian vice: that rigorous logic does not assure apt economic theory.