David Ricardo facts for kids
Quick facts for kids
David Ricardo
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Portrait by Thomas Phillips, c. 1821
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| Member of Parliament for Portarlington |
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| In office 20 February 1819 – 11 September 1823 |
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| Preceded by | Richard Sharp |
| Succeeded by | James Farquhar |
| Personal details | |
| Born | 18 April 1772 London, England |
| Died | 11 September 1823 (aged 51) Gatcombe Park, Gloucestershire, England |
| Political party | Whig |
| Children | Including David the Younger |
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| Academic career | |
| School or tradition |
Classical economics |
| Influences | Ibn Khaldun · Smith · Bentham |
| Contributions | Ricardian equivalence, labour theory of value, comparative advantage, law of diminishing returns, Ricardian socialism, Economic rent |
David Ricardo (born April 18, 1772 – died September 11, 1823) was an important British economist. He was one of the most influential "classical economists." Other famous classical economists included Thomas Malthus and Adam Smith. Ricardo was also a politician. He served as a member of the British Parliament.
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About David Ricardo
David Ricardo was born in London, England. He was one of 17 children. His father, Abraham Israel Ricardo, was a successful stockbroker. David started working with his father when he was just 14 years old.
When he was 21, David married Priscilla Anne Wilkinson. She was a Quaker. He also changed his religion to Unitarianism. This upset his family, and he became separated from them. His father disowned him, and his mother never spoke to him again.
How He Made His Fortune
After leaving his family, Ricardo started his own business. He got help from a major banking company. He made most of his money by helping the government borrow money. He was already very rich by 1815.
He later bought a large estate called Gatcombe Park in Gloucestershire. He became a local official there. In 1818, he bought a seat in Parliament for £4,000. He was a strong supporter of reforms in Parliament until his death five years later.
Ricardo was good friends with James Mill. He was also friends with Jeremy Bentham and Thomas Robert Malthus. He had many debates with Malthus about important economic ideas.
Ricardo's Time in Parliament
As a Member of Parliament for Portarlington, Ricardo supported liberal ideas. He voted for political movements in Naples and Sicily. He also supported looking into how justice was handled in Tobago.
He voted to get rid of laws that limited free speech. He also supported an investigation into the Peterloo Massacre. In 1821, he voted to end the death penalty for forgery.
Supporting Free Trade
Ricardo strongly believed in free trade. This means countries should be able to trade goods without many taxes or rules. In 1821, he voted against taxes on sugar. He also thought taxes on goods from East India were too high compared to West India. He was against taxes on timber.
He believed that free trade would make more goods available cheaply. This would help people and improve their lives. He thought that increasing imports would make everyone better off.
Ricardo saw how the Corn Laws affected Britain. These laws put taxes on imported grain. They were meant to help British farmers. But Ricardo believed they made food more expensive. This meant workers needed higher wages. Higher wages reduced profits for businesses. This slowed down the country's economic growth.
Ricardo thought that free trade was the answer. He imagined Britain importing farm products and exporting manufactured goods. After his death, the Corn Laws were removed. His ideas about free trade became important government policy in Britain.
Death and Legacy
David Ricardo died when he was 51 years old. He passed away from an ear infection that spread to his brain.
He and his wife Priscilla had eight children. Two of his sons, Osman Ricardo and David Ricardo, also became Members of Parliament.
Ricardo is buried in a churchyard in Hardenhuish, England. When he died, his wealth was estimated to be between £675,000 and £775,000. This was a huge amount of money at the time.
Ricardo's Key Ideas
Ricardo wrote his first economics article when he was 37. He wrote about reducing the amount of money issued by the Bank of England. He also published a famous paper in 1810.
He was also an abolitionist. This means he was against slavery. In 1823, he spoke at a meeting and said that slavery was a "stain on the character of the nation."
Banking Ideas
Adam Smith thought that free commercial banking was good for the economy. But Ricardo, a few decades later, argued for a central bank. A central bank would be in charge of issuing money. His students, like John Stuart Mill, agreed with him.
Ricardo wrote a plan for a national bank. He believed the central bank should be independent. This means it should not be controlled by the government or any single person. He felt that no one group should have total control over how much money is in circulation. He wanted a fair system with good control.
Value Theory
David Ricardo tried to improve on Adam Smith’s idea of the Labour Theory of Value. Both believed that land, labor, and capital were the main things needed for production. Smith thought that labor alone decided the value of something.
Ricardo disagreed. He believed that since there are three main factors, one alone cannot decide value. He showed that even if labor is the only factor, the difficulty of the work and the tools used would affect the value. His most famous book is Principles of Political Economy and Taxation (1817).
Economic Rent
Ricardo also helped develop ideas about rent, wages, and profits. He defined "rent" as the extra profit gained from using better land or resources. He believed that as an economy grew, more land would be used, including poorer land. This would mostly benefit landowners. Ricardo thought this extra profit was good for the individual, but not necessarily for society as a whole.
Wages and Profits
In his "Theory of Profit," Ricardo said that if real wages (what workers can actually buy with their pay) go up, then real profits for businesses go down. This is because the money from selling goods is split between wages and profits. He said that profits depend on how high or low wages are. Wages depend on the price of basic needs, and the price of basic needs depends on the price of food.
Ricardo's Theory of International Trade
Before Ricardo, many economists believed in Mercantilism. This idea said that countries should trade to gain gold and silver by selling more than they buy. Ricardo challenged this.
He argued for "comparative advantage" and free trade. He said that countries should specialize in producing what they are best at. Even if one country is better at making everything, both countries can still benefit from trading. This is because each country should focus on what it does most efficiently compared to its own other options.
For example, Ricardo used an example of England and Portugal. Portugal could produce both cloth and wine with less labor. But Ricardo showed that both countries would still benefit if Portugal focused on wine (where its advantage was greatest) and England focused on cloth.
Protectionism
Like Adam Smith, Ricardo was against protectionism. This means putting high taxes or rules on imported goods to protect local industries. He believed that Britain's Corn Laws made less productive land farmed. This drove up rents for landowners. He thought this took profits away from new industrial businesses. Ricardo believed that landowners often spent their money on luxuries instead of investing it. He felt the Corn Laws were stopping the British economy from growing.
Technological Change
Ricardo also thought about how new technology affected workers. In 1821, he wrote that replacing human labor with machines could be "very harmful to the interests of the class of labourers." He believed that workers' concerns about machines taking their jobs were correct.
Criticism of Ricardo's Trade Theory
Ricardo himself knew that his comparative advantage theory had limits. He said it only works when capital (money, factories) cannot easily move between countries. If capital could move freely, he worried it would lead to jobs moving overseas. This could cause economic decline.
Some critics also argue that Ricardo's theory assumes production is always smooth. In the real world, things like natural disasters can stop production. If a country specializes too much, it could be in trouble if its trading partner faces a disaster. For example, if a country only makes industrial goods and relies on another country for food, a drought in the food-producing country could cause starvation.
Ricardian Equivalence
Another idea linked to Ricardo is Ricardian equivalence. This suggests that how a government pays for its spending (through taxes or borrowing) might not affect the economy. This is because people might save money if the government borrows, expecting higher taxes later to pay off the debt. Ricardo noted that this idea is theoretical. He didn't think it worked in practice because people don't always act so rationally.
Influence and Legacy
David Ricardo's ideas greatly influenced later economic thinking. Many economists see him as one of the most important thinkers before the 20th century, second only to Adam Smith.
Ricardian Socialists
Ricardo's writings interested some early socialists in the 1820s. They thought his ideas about value meant that labor creates all products. They argued that the profits capitalists made came from exploiting workers.
Georgists
Henry George was greatly influenced by Ricardo. Georgists believe that "rent" (the extra value from owning scarce resources) should belong to the whole community.
Neo-Ricardians
Later, a new group of economists called "Neo-Ricardians" brought Ricardo's ideas back into focus. They built on his work and criticized some newer economic theories.
Images for kids
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Portrait of David Ricardo by Thomas Phillips, circa 1821
