ECO2023
DAVID RICARDO & THE COMARATIVE AND ABSOLUTE ADVANTAGE
David Ricardo was one of those rare people who achieved both tremendous success and lasting fame. After his family disinherited him for marrying outside his Jewish faith, Ricardo made a fortune as a stockbroker and loan broker. When he died, his estate was worth more than $100 million in today’s dollars. At age twenty-seven, after reading Adam Smith’s The Wealth of Nations, Ricardo got excited about economics. He wrote his first economics article at age thirty-seven and then spent the following fourteen years—his last ones—as a professional economist.
Ricardo first gained notice among economists over the “bullion controversy.” In 1809 he wrote that England’s inflation…show more content… Writing a century before Paul Samuelson and other modern economists popularized the use of equations; Ricardo is still esteemed for his uncanny ability to arrive at complex conclusions without any of the mathematical tools now deemed essential. As economist David Friedman put it in his 1990 textbook, Price Theory, “The modern economist reading Ricardo’s Principles feels rather as a member of one of the Mount Everest expeditions would feel if, arriving at the top of the mountain, he encountered a hiker clad in T-shirt and tennis shoes.”
One of Ricardo’s chief contributions, arrived at without mathematical tools, is his theory of rents. Borrowing from Thomas Malthus, with whom Ricardo was closely associated but often diametrically opposed, Ricardo explained that as more land was cultivated, farmers would have to start using less productive land. But because a bushel of corn from less productive land sells for the same price as a bushel from highly productive land, tenant farmers would be willing to pay more to rent the highly productive land. Result: the landowners, not the tenant farmers, are the ones who gain from productive land. This finding has withstood the test of time. Economists use Ricardian reasoning today to explain why agricultural price supports do not help farmers per se but do make owners of farmland wealthier. Economists use similar reasoning to explain why
