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David Ricardo: the story on HearLore | HearLore
— Ch. 1 · A Son Disowned —
David Ricardo.
~6 min read · Ch. 1 of 7
David Ricardo was born on the 18th of April 1772 in London. He entered the world as the third surviving child of Abraham Israel Ricardo and Abigail Delvalle. His family belonged to a Sephardic Jewish community that had settled in England for three generations. They operated as small but prosperous tobacco and snuff merchants before gaining British citizenship. The family had recently relocated from the Dutch Republic, bringing their heritage with them.
At age 21, Ricardo made a choice that severed his ties to his origins. He eloped with Priscilla Anne Wilkinson, a Quaker woman. Against his father's wishes, he converted to Unitarianism. This religious difference resulted in estrangement from his family. His father disowned him completely. His mother apparently never spoke to him again. He adopted a position of independence at a time when he should have been undergoing academic training.
The Waterloo Windfall
Following this estrangement, Ricardo went into business for himself with support from Lubbocks and Forster, an eminent banking house. He made the bulk of his fortune by profitably financing government borrowing during the Revolutionary and Napoleonic Wars. A popular story states that he netted upwards of a million sterling from speculation on the outcome of the Battle of Waterloo. This account appeared in his obituary published on the 14th of September 1823 in The Sunday Times.
In reality, Ricardo was already very rich before the battle concluded. In June 1815, he sold his latest government stock before the result of the battle was known in London. He missed half of the rise in value. Despite missing the peak, he retired to an estate in Gloucestershire called Gatcombe Park. He served as High Sheriff of Gloucestershire for 1818, 19. In August 1818, he bought Lord Portarlington's seat in Parliament for £4,000 as part of a loan agreement totaling £25,000.
When was David Ricardo born and where did he grow up?
David Ricardo was born on the 18th of April 1772 in London. He grew up as the third surviving child of Abraham Israel Ricardo and Abigail Delvalle within a Sephardic Jewish community that had settled in England for three generations.
How did David Ricardo make his fortune before entering politics?
David Ricardo made the bulk of his fortune by profitably financing government borrowing during the Revolutionary and Napoleonic Wars. A popular story states that he netted upwards of a million sterling from speculation on the outcome of the Battle of Waterloo, though he actually sold his latest government stock in June 1815 before the result was known in London.
What are the key economic theories developed by David Ricardo?
David Ricardo advanced a labour theory of value that refined Adam Smiths earlier ideas and suggested mutual national benefit from trade even if one country is more competitive than its counterpart. He also contributed to theories of rent, wages, and profits by defining rent as the difference between produce obtained by equal quantities of capital and labour.
Why did David Ricardo convert to Unitarianism and what were the consequences?
David Ricardo converted to Unitarianism at age 21 after eloping with Priscilla Anne Wilkinson against his father's wishes. This religious difference resulted in estrangement from his family because his father disowned him completely and his mother apparently never spoke to him again.
When did David Ricardo die and when was his Plan for the Establishment of a National Bank published?
David Ricardo died on the 14th of September 1823 according to his obituary published in The Sunday Times. His document Plan for the Establishment of a National Bank was published posthumously in 1824 and argued for the autonomy of the central bank as the issuer of money.
Ricardo wrote his first economics article at age 37. It appeared in The Morning Chronicle advocating reduction in the note-issuing of the Bank of England. He later published The High Price of Bullion, a Proof of the Depreciation of Bank Notes in 1810. His most famous work is Principles of Political Economy and Taxation, released in 1817. He advanced a labour theory of value that refined Adam Smiths earlier ideas.
Smith narrowed in on labour as the determinant of value. Ricardo believed that with production having three factors it is impossible for only one of them to determine value on its own. He illustrates his point by adapting Smiths deer-beaver analogy. Even when labour is the only factor of production, the hardship and tools of the labour will drive a wedge in the relative value of the good. George Stigler called this theory a 93% labor theory of value because of these adjustments.
The Four Magic Numbers
Paul Samuelson called the numbers used in Ricardos example dealing with trade between England and Portugal the four magic numbers. Ricardo suggested that there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart. A nation should concentrate resources only in industries where it has the greatest efficiency of production relative to its own alternative uses of resources.
He argued that international trade is always beneficial. This theory expanded on the concept of absolute advantage. The Portuguese could produce both cloth and wine with less amount of labour. Yet Ricardo suggested that both countries would benefit from trade with each other. He noted that applying his theory in situations where capital was mobile would result in offshoring and economic decline. To correct for this, he argued that most men of property would be satisfied with a low rate of profits in their own country rather than seeking a more advantageous employment for their wealth in foreign nations.
Rent And Profits Model
Ricardo contributed to the development of theories of rent, wages, and profits. He defined rent as the difference between the produce obtained by the employment of two equal quantities of capital and labour. He believed that the process of economic development increased land use and eventually led to the cultivation of poorer land. Such premium over real social value that is reaped due to ownership constitutes value to an individual but is at best a paper monetary return to society.
In particular, Ricardo postulates that rent is a result of increased populations which results in assets growing scarce. He breaks down this premise by first supposing there are three fields of land numbered 1, 2, and 3 to yield corn. Initially land No. 1 is cultivated and is very productive. Over time this abundant surplus becomes diminished as the result of an increase in population. The less desired land, No. 2, must now be cultivated. For each new cultivated field, there is diminished surplus as the quality of land fails to yield the equal of that before it. Landowners see opportunities to charge rent as a means to compensate for the loss of returns on output.
The Central Bank Plan
Adam Smith argued that free commercial banking was favourable to economic growth. Writing just a few decades later, Ricardo argued for a central bank. He wrote the Plan for the Establishment of a National Bank, published posthumously in 1824. This document argued for the autonomy of the central bank as the issuer of money. He proposed that a ratio of gold and Treasury bills would secure the central banks liquidity.
Ricardo stated that the public or the Government on behalf of the public is indebted to the Bank in a sum of money larger than the whole amount of Bank notes in circulation. In 1816, he said they have the power without any control whatever of increasing or reducing the circulation in any degree they may think proper. He felt the circulation of money should not be entrusted to either the State or any individual. He advocated for the most even distribution possible with the highest control readily available.
Legacy Of The Socialists
David Ricardos ideas had a tremendous influence on later developments in economics. US economists rank Ricardo as the second most influential economic thinker behind Adam Smith prior to the twentieth century. Despite his laissez-faire capitalist views, his writings fascinated a number of early socialists in the 1820s. They thought his value theory had radical implications. Thomas Hodgskin, William Thompson, John Francis Bray, and Percy Ravenstone were among those who believed labour produces the entire product while profits capitalists get are a result of exploitation of workers.
Henry George was greatly influenced by Ricardo and often cited him in Progress and Poverty from 1879. George wrote that he united the truth perceived by the school of Smith and Ricardo to the truth perceived by the school of Proudhon and Lasalle. Later, Piero Sraffa resurrected Ricardo as the originator of another strand of economic thought which was effaced with the arrival of the neoclassical school. Major contributors to this Neo-Ricardian school include Luigi Pasinetti, Pierangelo Garegnani, Ian Steedman, Geoffrey Harcourt, Heinz Kurz, Neri Salvadori, and Pier Paolo Saviotti.