David Ricardo

David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill.[2][3]


David Ricardo
Portrait of David Ricardo by Thomas Phillips
Portrait of David Ricardo by Thomas Phillips, circa 1821. This painting shows Ricardo, aged 49, just two years before his death.
Member of Parliament
for Portarlington
In office
20 February 1819 – 11 September 1823
Preceded byRichard Sharp
Succeeded byJames Farquhar
Personal details
Born18 April 1772
London, England
Died11 September 1823 (aged 51)
Gatcombe Park, Gloucestershire, England
NationalityBritish
Political partyWhig
Spouse(s)
Priscilla Anne Wilkinson (m. 1793–1823)
Children6 children, including David the Younger
Profession
Academic career
School or
tradition
Classical economics
InfluencesSmith · Bentham · Torrens
ContributionsRicardian equivalence, labour theory of value, comparative advantage, law of diminishing returns, Ricardian socialism, Economic rent[1]

Personal life

Born in London, England, Ricardo was the third of 17 children of a Sephardic Jewish family of Portuguese origin who had recently relocated from the Dutch Republic.[4] His father, Abraham Ricardo, was a successful stockbroker.[4] He began working with his father at the age of 14. At age 21, Ricardo eloped with a Quaker, Priscilla Anne Wilkinson, and, against his father's wishes, converted to the Unitarian faith.[5] This religious difference resulted in estrangement from his family, and he was led to adopt a position of independence.[6] His father disowned him and his mother apparently never spoke to him again.[7]

Following this estrangement he went into business for himself with the support of Lubbocks and Forster, an eminent banking house. He made the bulk of his fortune as a result of speculation on the outcome of the Battle of Waterloo. The Sunday Times reported in Ricardo's obituary, published on 14 September 1823, that during the Battle of Waterloo Ricardo "netted upwards of a million sterling", a huge sum at the time. He immediately retired, his position on the floor no longer tenable, and subsequently purchased Gatcombe Park, an estate in Gloucestershire, now owned by Princess Anne, the Princess Royal and retired to the country. He was appointed High Sheriff of Gloucestershire for 1818–19.[8]

In August 1818 he bought Lord Portarlington's seat in Parliament for £4,000, as part of the terms of a loan of £25,000. His record in Parliament was that of an earnest reformer. He held the seat until his death five years later.

Ricardo was a close friend of James Mill. Other notable friends included Jeremy Bentham and Thomas Malthus, with whom Ricardo had a considerable debate (in correspondence) over such things as the role of landowners in a society. He also was a member of Malthus' Political Economy Club, and a member of the King of Clubs. He was one of the original members of The Geological Society.[7] His youngest sister was author Sarah Ricardo-Porter (e.g., Conversations in Arithmetic).

Parliamentary record

He voted with opposition in support of the liberal movements in Naples, 21 Feb., and Sicily, 21 June, and for inquiry into the administration of justice in Tobago, 6 June. He divided for repeal of the Blasphemous and Seditious Libels Act, 8 May, inquiry into the Peterloo massacre, 16 May, and abolition of the death penalty for forgery, 25 May, 4 June 1821.

He adamantly supported the implementation of free trade. He voted against renewal of the sugar duties, 9 Feb., and objected to the higher duty on East as opposed to West Indian produce, 4 May 1821. He opposed the timber duties. He voted silently for parliamentary reform, 25 Apr., 3 June, and spoke in its favour at the Westminster anniversary reform dinner, 23 May 1822. He again voted for criminal law reform, 4 June.

His friend John Louis Mallett commented: " … he meets you upon every subject that he has studied with a mind made up, and opinions in the nature of mathematical truths. He spoke of parliamentary reform and ballot as a man who would bring such things about, and destroy the existing system tomorrow, if it were in his power, and without the slightest doubt on the result … It is this very quality of the man’s mind, his entire disregard of experience and practice, which makes me doubtful of his opinions on political economy."

Death and legacy

Ten years after retiring and four years after entering Parliament Ricardo died from an infection of the middle ear that spread into the brain and induced septicaemia. He was 51.

He had eight children, including three sons, of whom Osman Ricardo (1795–1881; MP for Worcester 1847–1865) and another David Ricardo (1803–1864, MP for Stroud 1832–1833), became Members of Parliament, while the third, Mortimer Ricardo, served as an officer in the Life Guards and was a deputy lieutenant for Oxfordshire.[9]

Ricardo is buried in an ornate grave in the churchyard of Saint Nicholas in Hardenhuish, now a suburb of Chippenham, Wiltshire.[10] At the time of his death his fortune was estimated at about £600,000.

Ideas

Ricardo became interested in economics after reading Adam Smith's The Wealth of Nations in 1799. He wrote his first economics article at age 37, firstly in The Morning Chronicle advocating reduction in the note-issuing of the Bank of England and then publishing "The High Price of Bullion, a Proof of the Depreciation of Bank Notes" in 1810.[11]

He was also an abolitionist, speaking at a meeting of the Court of the East India Company in March 1823, where he said he regarded slavery as a stain on the character of the nation.[12] His sister, Hanna, had married David Samuda (1776–1824) who came from a slave-owning family with a substantial number of slaves in Jamaica.[13]

Value theory

Ricardo's most famous work is his Principles of Political Economy and Taxation (1817). He advanced a labor theory of value:[14]

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 less compensation which is paid for that labour.

Ricardo's note to Section VI:[15]

Mr. Malthus appears to think that it is a part of my doctrine, that the cost and value of a thing be the same;—it is, if he means by cost, "cost of production" including profit.

Rent

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 labor." Ricardo believed that the process of economic development, which increased land utilization and eventually led to the cultivation of poorer land, principally benefited landowners. According to Ricardo, such premium over "real social value" that is reaped due to ownership constitutes value to an individual but is at best[16] a paper monetary return to "society". The portion of such purely individual benefit that accrues to scarce resources Ricardo labels "rent".

Ricardo's theories of wages and profits

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."

Ricardian theory of international trade

Between 1500 and 1750 most economists advocated Mercantilism which promoted the idea of international trade for the purpose of earning bullion by running a trade surplus with other countries. Ricardo challenged the idea that the purpose of trade was merely to accumulate gold or silver. With "comparative advantage" Ricardo argued in favour of industry specialisation and free trade. He suggested that industry specialization combined with free international trade always produces positive results. This theory expanded on the concept of absolute advantage.

Ricardo suggested that there is mutual national benefit from trade even if one country is more competitive in every area than its trading counterpart and that a nation should concentrate resources only in industries where it has a comparative advantage,[17] that is in those industries in which it has the greatest competitive edge. Ricardo suggested that national industries which were, in fact, profitable and internationally competitive should be jettisoned in favour of the most competitive industries, the assumption being that subsequent economic growth would more than offset any economic dislocation which would result from closing profitable and competitive national industries.

Ricardo attempted to prove theoretically that international trade is always beneficial.[18] Paul Samuelson called the numbers used in Ricardo's example dealing with trade between England and Portugal the "four magic numbers".[19] "In spite of the fact that the Portuguese could produce both cloth and wine with less amount of labor, Ricardo suggested that both countries would benefit from trade with each other".

As for recent extensions of Ricardian models, see Ricardian trade theory extensions

Comparative advantage

Ricardo's theory of international trade was reformulated by John Stuart Mill.[20] The term "comparative advantage" was started by J. S. Mill and his contemporaries.

John Stuart Mill started a neoclassical turn of international trade theory, i.e. his formulation was inherited by Alfred Marshall and others and contributed to the resurrection of anti-Ricardian concept of law of supply and demand and induce the arrival neoclassical theory of value.[21]

New interpretation

Ricardo's four magic numbers has long been interpreted as comparison of two ratios of labor input coefficients. This interpretation is now considered as erroneous. This point was first pointed by Roy J. Ruffin[22] in 2002 and examined and explained in detail in Andrea Maneschi[23] in 2004. This is now known as new interpretation but it has been mentioned by P. Sraffa in 1930 and by Kenzo Yukizawa in 1974.[24] The new interpretation affords totally new reading of Ricardo's Principles of Political Economy and Taxation with regards to trade theory.[25]

Protectionism

Like Adam Smith, Ricardo was an opponent of protectionism for national economies, especially for agriculture. He believed that the British "Corn Laws"—tariffs on agricultural products—ensured that less-productive domestic land would be harvested and rents would be driven up (Case & Fair 1999, pp. 812, 813). Thus, profits would be directed toward landlords and away from the emerging industrial capitalists. Ricardo believed landlords tended to squander their wealth on luxuries, rather than invest. He believed the Corn Laws were leading to the stagnation of the British economy.[26] In 1846, his nephew John Lewis Ricardo, MP for Stoke-upon-Trent, advocated free trade and the repeal of the Corn Laws.

Modern empirical analysis of the Corn Laws yield mixed results.[27] Parliament repealed the Corn Laws in 1846.

Criticism of the Ricardian theory of trade

Ricardo himself was the first to recognize that comparative advantage is a domain-specific theory, meaning that it only applies when certain conditions are met. Ricardo noted that the theory only applies in situations where capital is immobile. Regarding his famous example, he wrote:

it would undoubtedly be advantageous to the capitalists [and consumers] of England… [that] the wine and cloth should both be made in Portugal [and that] the capital and labour of England employed in making cloth should be removed to Portugal for that purpose.[28]

Ricardo recognized that applying his theory in situations where capital was mobile would result in offshoring, and therefore economic decline and job loss. To correct for this, he argued that (i) most men of property [will be] satisfied with a low rate of profits in their own country, rather than seek[ing] a more advantageous employment for their wealth in foreign nations, and (ii) that capital was functionally immobile.[28]

Ricardo's argument in favour of free trade has also been attacked by those who believe trade restriction can be necessary for the economic development of a nation. Utsa Patnaik claims that Ricardian theory of international trade contains a logical fallacy. Ricardo assumed that in both countries two goods are producible and actually are produced, but developed and underdeveloped countries often trade those goods which are not producible in their own country. In these cases, one cannot define which country has comparative advantage.[29]

Critics also argue that Ricardo's theory of comparative advantage is flawed in that it assumes production is continuous and absolute. In the real world, events outside the realm of human control (e.g. natural disasters) can disrupt production. In this case, specialisation could cripple a country that depends on imports from foreign, naturally disrupted countries. For example, if an industrially based country trades its manufactured goods with an agrarian country in exchange for agricultural products, a natural disaster in the agricultural country (e.g. drought) may cause an industrially based country to starve.

As Joan Robinson pointed out, following the opening of free trade with England, Portugal endured centuries of economic underdevelopment: "the imposition of free trade on Portugal killed off a promising textile industry and left her with a slow-growing export market for wine, while for England, exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution". Robinson argued that Ricardo's example required that economies were in static equilibrium positions with full employment and that there could not be a trade deficit or a trade surplus. These conditions, she wrote, were not relevant to the real world. She also argued that Ricardo's math did not take into account that some countries may be at different levels of development and that this raised the prospect of 'unequal exchange' which might hamper a country's development, as we saw in the case of Portugal.[30]

The development economist Ha-Joon Chang challenges the argument that free trade benefits every country:

Ricardo’s theory is absolutely right—within its narrow confines. His theory correctly says that, accepting their current levels of technology as given, it is better for countries to specialize in things that they are relatively better at. One cannot argue with that. His theory fails when a country wants to acquire more advanced technologies—that is, when it wants to develop its economy. It takes time and experience to absorb new technologies, so technologically backward producers need a period of protection from international competition during this period of learning. Such protection is costly, because the country is giving up the chance to import better and cheaper products. However, it is a price that has to be paid if it wants to develop advanced industries. Ricardo’s theory is, thus seen, for those who accept the status quo but not for those who want to change it.[31]

Ricardian equivalence

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. This is due to the fact the public saves its excess money to pay for expected future tax increases that will be used to pay off the debt. Ricardo notes that the proposition is theoretically implied in the presence of intertemporal optimisation by rational tax-payers: but that since tax-payers do not act so rationally, the proposition fails to be true in practice. Thus, while the proposition bears his name, he does not seem to have believed it. Economist Robert Barro is responsible for its modern prominence.

Influence and intellectual legacy

David Ricardo's 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.[32]

Ricardo became the theoretical father of classical political economy. However, Schumpeter coined an expression Ricardian vice, which indicates that rigorous logic does not provide a good economic theory.[33] This criticism applies also to most neoclassical theories, which make heavy use of mathematics, but are, according to him, theoretically unsound, because the conclusion being drawn does not logically follow from the theories used to defend it.

Ricardian socialists

Ricardo's writings fascinated a number of early socialists in the 1820s, who thought his value theory had radical implications. They argued that, in view of labor theory of value, labor produces the entire product, and the profits capitalists get are a result of exploitations of workers.[34] These include Thomas Hodgskin, William Thompson, John Francis Bray, and Percy Ravenstone.

Georgists

Georgists believe that rent, in the sense that Ricardo used, belongs to the community as a whole. Henry George was greatly influenced by Ricardo, and often cited him, including in his most famous work, Progress and Poverty from 1879. In the preface to the fourth edition, he wrote: "What I have done in this book, if I have correctly solved the great problem I have sought to investigate, is, to unite the truth perceived by the school of Smith and Ricardo to the truth perceived by the school of Proudhon and Lasalle; to show that laissez faire (in its full true meaning) opens the way to a realization of the noble dreams of socialism; to identify social law with moral law, and to disprove ideas which in the minds of many cloud grand and elevating perceptions."[35]

Neo-Ricardians

After the rise of the 'neoclassical' school, Ricardo's influence declined temporarily. It was Piero Sraffa, the editor of the Collected Works of David Ricardo[36] and the author of seminal Production of Commodities by Means of Commodities,[37] who resurrected Ricardo as the originator of another strand of economics thought, which was effaced with the arrival of the neoclassical school. The new interpretation of Ricardo and Sraffa's criticism against the marginal theory of value gave rise to a new school, now named neo-Ricardian or Sraffian school. Major contributors to this school includes Luigi Pasinetti (1930–), Pierangelo Garegnani (1930–2011), Ian Steedman (1941–), Geoffrey Harcourt (1931–), Heinz Kurz (1946–), Neri Salvadori (1951–), Pier Paolo Saviotti (–) among others. See also Neo-Ricardianism. The Neo-Ricardian school is sometimes seen to be a component of Post-Keynesian economics.

Neo-Ricardian trade theory

Inspired by Piero Sraffa, a new strand of trade theory emerged and was named neo-Ricardian trade theory. The main contributors include Ian Steedman and Stanley Metcalfe. They have criticised neoclassical international trade theory, namely the Heckscher–Ohlin model on the basis that the notion of capital as primary factor has no method of measuring it before the determination of profit rate (thus trapped in a logical vicious circle).[38][39] This was a second round of the Cambridge capital controversy, this time in the field of international trade.[40] Depoortère and Ravix judge that neo-Ricardian contribution failed without giving effective impact on neoclassical trade theory, because it could not offer “a genuine alternative approach from a classical point of view.”[41]

Evolutionary growth theory

Several distinctive groups have sprung out of the neo-Ricardian school. One is the evolutionary growth theory, developed notably by Luigi Pasinetti, J.S. Metcalfe, Pier Paolo Saviotti, and Koen Frenken and others.[42][43]

Pasinetti[44][45] argued that the demand for any commodity came to stagnate and frequently decline, demand saturation occurs. Introduction of new commodities (goods and services) is necessary to avoid economic stagnation.

Contemporary theories

Ricardo's idea was even expanded to the case of continuum of goods by Dornbusch, Fischer, and Samuelson[46] This formulation is employed for example by Matsuyama[47] and others.

Ricardian trade theory ordinarily assumes that the labour is the unique input. This is a deficiency as intermediate goods are a great part of international trade. The situation changed after the appearance of Yoshinori Shiozawa's work of 2007.[48] He has succeeded to incorporate traded input goods in his model.[49]

Yeats found that 30% of world trade in manufacturing is intermediate inputs.[50] Bardhan and Jafee found that intermediate inputs occupy 37 to 38% in the imports to the US for the years from 1992 to 1997, whereas the percentage of intrafirm trade grew from 43% in 1992 to 52% in 1997.[51]

Unequal exchange

Chris Edward includes Emmanuel's unequal exchange theory among variations of neo-Ricardian trade theory.[52] Arghiri Emmanuel argued that the Third World is poor because of the international exploitation of labour.[53]

The unequal exchange theory of trade has been influential to the (new) dependency theory.[54]

Publications

Ricardo - Opere, 1852 - 5181784
Works, 1852

Ricardo's publications included:

  • The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810), which advocated the adoption of a metallic currency.
  • Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815), which argued that repealing the Corn Laws would distribute more wealth to the productive members of society.
  • On the Principles of Political Economy and Taxation (1817), an analysis that concluded that land rent grows as population increases. It also clearly laid out the theory of comparative advantage, which argued that all nations could benefit from free trade, even if a nation was less efficient at producing all kinds of goods than its trading partners.

His works and writings were collected in 1772-1823., Ricardo, David, (1981-). The works and correspondence of David Ricardo (1st paperback ed.). Cambridge: Cambridge University Press. ISBN 0521285054. OCLC 10251383. Check date values in: |date= (help)

References

Notes

  1. ^ Miller, Roger LeRoy. Economics Today. Fifteenth Edition. Boston, MA: Pearson Education. p. 559
  2. ^ Sowell, Thomas (2006). On classical economics. New Haven, CT: Yale University Press.
  3. ^ http://www.policonomics.com/david-ricardo/
  4. ^ a b Heertje, Arnold (2004). "The Dutch and Portuguese-Jewish background of David Ricardo". European Journal of the History of Economic Thought. 11 (2): 281–94. doi:10.1080/0967256042000209288.
  5. ^ Francisco Solano Constancio, Paul Henri Alcide Fonteyraud. 1847. Œuvres complètes de David Ricardo, Guillaumin, (pp. v–xlviii): A part sa conversion au Christianisme et son mariage avec une femme qu'il eut l'audace grande d'aimer malgré les ordres de son père
  6. ^ Ricardo, David. 1919. Principles of Political Economy and Taxation. G. Bell, p. lix: "by reason of a religious difference with his father, to adopt a position of independence at a time when he should have been undergoing that academic training"
  7. ^ a b Sraffa, Piero, David Ricardo (1955), The Works and Correspondence of David Ricardo: Volume 10, Biographical Miscellany, Cambridge, UK: Cambridge University Press, p. 434, ISBN 0-521-06075-3CS1 maint: Multiple names: authors list (link)
  8. ^ "No. 17326". The London Gazette. 24 January 1818. p. 188.
  9. ^ "RICARDO, David (1772–1823), of Gatcombe Park, Minchinhampton, Glos. and 56 Upper Brook Street, Grosvenor Square, Mdx". History of Parliament Online. Retrieved 18 September 2013.
  10. ^ David Ricardo at Find a Grave
  11. ^ Hayek, Friedrich (1991). "The Restriction Period, 1797-1821, and the Bullion Debate". The Trend of Economic Thinking. pp. 199–200. ISBN 978-0865977426.
  12. ^ King, John (2013). David Ricardo. Palgrave Macmillan. p. 48. |access-date= requires |url= (help)
  13. ^ Okker, Rudolph. "Re: Samuda". Gen Forum. Retrieved 11 September 2014.
  14. ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 11.
  15. ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 47.
  16. ^ On The Principles of Political Economy and Taxation London: John Murray, Albemarle-Street, by David Ricardo, 1817 (third edition 1821) – Chapter 6, On Profits: paragraph 28, "Thus, taking the former . . ." and paragraph 33, "There can, however...."
  17. ^ Roberts, Paul Craig (2003-08-28), "The Trade Question", Washington Times
  18. ^ Ricardo, David (1817) On the Principles of Political Economy and Taxation. Piero Sraffa (Ed.) Works and Correspondence of David Ricardo, Volume I, Cambridge University Press, 1951, p. 135.
  19. ^ Samuelson, Paul A. (1972), "The Way of an Economist." Reprinted in The Collected Papers of Paul A. Samuelson. Ed. R. C. Merton. Cambridge: Cambridge MIT Press. p. 378.
  20. ^ Mill, J. S. (1844) Essays on some unsettled questions of political economy. London, John W. Parker; Mill, J. S. (1848) The principles of political economy. (vol. I and II) Boston: C.C.Little & J. Brown.
  21. ^ Shiozawa, Y. (2017) An Origin of the Neoclassicla Revolutions: Mill's "Reversion" and its consequences. In Shiozawa, Oka,and Tabuchi (eds.) A New Construction of Ricardian Theory of International Values, Tokyo: Springer Japan, Chapter 7 pp.191-243.
  22. ^ Ruffin, R.J. (2002) David Ricardo's discovery of comparative advantage. History of Political Economy 34(4): 727-748.
  23. ^ Maneschi, A. (2004) The true meaning of David Ricardo's fur magic numbers. Journal of International Economics 62(2): 433-443.
  24. ^ Tabuchi, T. (2017) Yukizawa's interpretation of Ricardo's `theory of comparative cost`. In Senga, Fujimoto, and Tabuchi (Eds.) Ricardo and International Trade, London and New York; Routledge, Chapter 4, pp.48-59.
  25. ^ Faccarello, G. (2017) A calm investigation into Mr. Ricardo's principle of international trade. In Senga, Fujimoto, and Tabuchi (Eds.) Ricardo and International Trade, London and New York; Routledge. Tabuchi, T. (2017) Comparative Advantage in the Light of the Old Value Theories. In Shiozawa, Oka,and Tabuchi (eds.) A New Construction of Ricardian Theory of International Values, Tokyo: Springer Japan, Chapter 9 pp.265-280.
  26. ^ Letter of Mill cited in The works and correspondence of David Ricardo. : Volume 9, Letters july 1821-1823 (Cambridge, UK, 1952)
  27. ^ Williamson, J. G. (1990). "The impact of the Corn Laws just prior to repeal". Explorations in Economic History. 27 (2): 123. doi:10.1016/0014-4983(90)90007-L.
  28. ^ a b Ricardo, David (1821). On the Principles of Political Economy and Taxation. John Murray. p. 7.19.
  29. ^ Patnaik, Uta (2005). "Ricardo's Fallacy/ Mutual Benefit from Trade Based on Comparative Costs and Specialization?". In Jomo, K. S. The Pioneers of Development Economics: Great Economists on Development. London and New York: Zed books. pp. 31–41. ISBN 81-85229-99-6.
  30. ^ Robinson, Joan (1979). Aspects of Development and Underdevelopment. Cambridge: Cambridge University Press. p. 103. ISBN 0521226376.
  31. ^ Chang, Ha-Joon (2007), "Bad Samaritans", Chapter 2, pp. 30–31.
  32. ^ Davis, William L., Bob Figgins, David Hedengren, and Daniel B. Klein. "Economics Professors' Favorite Economic Thinkers, Journals and Blogs (along with Party and Policy Views)," Econ Journal Watch 8(2): 126–46, May 2011 [1].
  33. ^ Schumpeter, History of Economic Analysis, (published posthumously, ed. Elisabeth Boody Schumpeter), 1954. pp. 569, 1171. Schumpeter also criticized J. M. Keynes for committing the same Ricardian vice.
  34. ^ Landreth Colander 1989 History of Economic Thought Second Edition, p.137.
  35. ^ George, Henry, Progress and Poverty. Preface to the 4th Edition, November 1880.
  36. ^ Piero Sraffa and M.H. Dobb, editors (1951–1973). The Works and Correspondence of David Ricardo. Cambridge University Press, 11 volumes.
  37. ^ Sraffa, Piero 1960, Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory. Cambridge University Press.
  38. ^ Steedman, Ian, ed. (1979). Fundamental Issues in Trade Theory. London: MacMillan. ISBN 0-333-25834-7.
  39. ^ Steedman, Ian (1979). Trade Amongst Growing Economies. Cambridge, UK: Cambridge University Press. pp. . ISBN 0-521-22671-6.
  40. ^ Edwards, Chris (1985). "§ 3.2 The 'Sraffian' Approach to Trade Theory". The Fragmented World: Competing Perspectives on Trade, Money, and Crisis. London and New York: Methuen & Co. pp. 48–51. ISBN 0-416-73390-5.
  41. ^ Christophe Depoortère, Joël Thomas Ravix 2015 The classical theory of international trade after Sraffa. Cahiers d'économie Politique / Papers in Political Economy (69): 203–34, February 2015.
  42. ^ Pasinetti, Luisi 1981 Structural change and economic growth, Cambridge University Press. J.S. Metcalfe and P.P. Saviotti (eds.), 1991, Evolutionary Theories of Economic and Technological Change, Harwood, 275 pages. J.S. Metcalfe 1998, Evolutionary Economics and Creative Destruction, Routledge, London. Frenken, K., Van Oort, F.G., Verburg, T., Boschma, R.A. (2004). Variety and Regional Economic Growth in the Netherlands – Final Report (The Hague: Ministry of Economic Affairs), 58 p. (pdf)
  43. ^ Saviotti, Pier Paolo; Frenken, Koen (2008), "Export variety and the economic performance of countries", Journal of Evolutionary Economics, 18 (2): 201–18, doi:10.1007/s00191-007-0081-5
  44. ^ Pasinetti, Luigi L. (1981), Structural change and economic growth: a theoretical essay on the dynamics of the wealth of nations, Cambridge, UK: Cambridge University Press, pp. , ISBN 0-521-27410-9
  45. ^ Pasinetti, Luigi L. (1993), Structural economic dynamics: a theory of the economic consequences of human learning, Cambridge, UK: Cambridge University Press, pp. , ISBN 0-521-43282-0
  46. ^ Dornbusch, R.; Fischer, S.; Samuelson, P. A. (1977), "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods" (PDF), The American Economic Review, 67 (5): 823–39, JSTOR 1828066, archived from the original (PDF) on 16 May 2011
  47. ^ Matsuyama, K. (2000), "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North–South Trade" (PDF), Journal of Political Economy, 108 (6): 1093–120, doi:10.1086/317684.
  48. ^ Shiozawa, Y. (2007). "A New Construction of Ricardian Trade Theory: A Multi-country, Multi-commodity Case with Intermediate Goods and Choice of Production Techniques". Evolutionary and Institutional Economics Review. 3 (2): 141–87. doi:10.14441/eier.3.141.
  49. ^ Y. Shiozawa (2017) The new theory of international values: An overview. Shiozawa, Oka and Tabuchi (eds.) A New Construction of Ricardian Theory of International Values. Singapore: Springer. Chapter 1, pp.3-73.
  50. ^ Yeats, A. (2001). "Just How Big is Global Production Sharing?". In Arndt, S.; Kierzkowski, H. Fragmentation: New Production Patterns in the World Economy. Oxford: Oxford University Press. ISBN 0-19-924331-X.
  51. ^ Bardhan, Ashok Deo; Jaffee, Dwight (2004). "On Intra-Firm Trade and Multinationals: Foreign Outsourcing and Offshoring in Manufacturing". In Graham, Monty; Solow, Robert. The Role of Foreign Direct Investment and Multinational Corporations in Economic Development.
  52. ^ Chris Edwards 1985 The Fragmented World: Competing Perspectives on Trade, Money and Crisis, London and New York: Methuen. Chapter 4.
  53. ^ Emmanuel, Arghiri (1972), Unequal exchange; a study of the imperialism of trade, New York: Monthly Review Press, pp. , ISBN 0-85345-188-5
  54. ^ Palma, G (1978), "Dependency: A formal theory of underdevelopment or a methodology for the analysis of concrete situations of underdevelopment?", World Development, 6 (7–8): 881–924, doi:10.1016/0305-750X(78)90051-7
A Contribution to the Critique of Political Economy

A Contribution to the Critique of Political Economy (German: Zur Kritik der Politischen Ökonomie) is a book by Karl Marx, first published in 1859. The book is mainly an analysis of capitalism and quantity theory of money, achieved by critiquing the writings of the leading theoretical exponents of capitalism at that time: these were the political economists, nowadays often referred to as the classical economists; Adam Smith (1723–90) and David Ricardo (1772–1823) are the foremost representatives of the genre.

Anthropological theories of value

Anthropological theories of value attempt to expand on the traditional theories of value used by economists or ethicists. They are often broader in scope than the theories of value of Adam Smith, David Ricardo, John Stuart Mill, Karl Marx, etc. usually including sociological, political, institutional, and historical perspectives (transdisciplinarity). Some have influenced feminist economics.

The basic premise is that economic activities can only be fully understood in the context of the society that creates them. The concept of "value" is a social construct, and as such is defined by the culture using the concept. Yet we can gain some insights into modern patterns of exchange, value, and wealth by examining previous societies. An anthropological approach to economic processes allows us to critically examine the cultural biases inherent in the principles of modern economics. Anthropological linguistics is a related field that looks at the terms we use to describe economic relations and the ecologies they are set within. Many anthropological economists (or economic anthropologists) are reacting against what they see as the portrayal of modern society as an economic machine that merely produces and consumes.

Marcel Mauss and Bronisław Malinowski for example wrote about objects that circulate in society without being consumed. Georges Bataille wrote about objects that are destroyed, but not consumed. Bruce Owens talks about objects of value that are neither circulating nor consumed (e.g. gold reserves, warehoused paintings, family heirlooms).

Circulating capital

Circulating capital includes intermediate goods and operating expenses, i.e., short-lived items that are used in production and used up in the process of creating other goods or services. This is roughly equal to intermediate consumption. Finer distinctions include raw materials, intermediate goods, inventories, ancillary operating expenses and (working capital). It is contrasted with fixed capital. The term was used in more specialized ways by classical economists such as Adam Smith, David Ricardo and Karl Marx.

Where the distinction is used, circulating capital is a component of (total) capital, also including fixed capital used in a single cycle of production. In contrast to fixed capital, it is used up in every cycle (raw materials, basic and intermediate materials, combustible, energy…). In accounting, the circulating capital comes under the heading of current assets.

Building on the work of Quesnay and Turgot, Adam Smith (1776) made the first explicit distinction between fixed and circulating capital. In his usage, circulating capital includes wages and labour maintenance, money, and inputs from land, mines, and fisheries associated with production.According to Karl Marx (second volume of Das Kapital, end of chapter 7) the turnover of capital influences "the processes of production and self-expansion", the two new forms of capital, circulating and fixed, "accrue to capital from the process of circulation and affect the form of its turnover". In the following chapter Marx defines fixed capital and circulating capital. In chapter 9 he claims: "We have here not alone quantitative but also qualitative difference."

Conventionally, (physical) capital assets held by a business for more than one year are regarded in annual accounting statements as "fixed", the rest as "circulating". In modern economies such as the United States, roughly half of the intermediate inputs bought or used by businesses are in fact services, and not goods.

Classical economics

Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. These economists produced a theory of market economies as largely self-regulating systems, governed by natural laws of production and exchange (famously captured by Adam Smith's metaphor of the invisible hand).

Adam Smith's The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economics. The fundamental message in Smith's book was that the wealth of any nation was determined not by the gold in the monarch's coffers, but by its national income. This income was in turn based on the labor of its inhabitants, organized efficiently by the division of labour and the use of accumulated capital, which became one of classical economics' central concepts.In terms of economic policy, the classical economists were pragmatic liberals, advocating the freedom of the market, though they saw a role for the state in providing for the common good. Smith acknowledged that there were areas where the market is not the best way to serve the common interest, and he took it as a given that the greater proportion of the costs supporting the common good should be borne by those best able to afford them. He warned repeatedly of the dangers of monopoly, and stressed the importance of competition. In terms of international trade, the classical economists were advocates of free trade, which distinguishes them from their mercantilist predecessors, who advocated protectionism.

The designation of Smith, Ricardo and some earlier economists as 'classical' is due to Karl Marx, to distinguish the 'greats' of economic theory from their 'vulgar' successors. There is some debate about what is covered by the term "classical economics", particularly when dealing with the period from 1830–75, and how classical economics relates to neoclassical economics.

Classical liberalism

Classical liberalism is a political ideology and a branch of liberalism which advocates civil liberties under the rule of law with an emphasis on economic freedom. Closely related to economic liberalism, it developed in the early 19th century, building on ideas from the previous century as a response to urbanisation and to the Industrial Revolution in Europe and the United States. Notable individuals whose ideas contributed to classical liberalism include John Locke, Jean-Baptiste Say, Thomas Robert Malthus and David Ricardo. It drew on the classical economic ideas espoused by Adam Smith in Book One of The Wealth of Nations and on a belief in natural law, utilitarianism and progress. The term "classical liberalism" has often been applied in retrospect to distinguish earlier 19th-century liberalism from social liberalism.

Commodity

In economics, a commodity is an economic good or service that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. Most commodities are raw materials, basic resources, agricultural, or mining products, such as iron ore, sugar, or grains like rice and wheat. Commodities can also be mass-produced unspecialized products such as chemicals and computer memory.

The price of a commodity good is typically determined as a function of its market as a whole: well-established physical commodities have actively traded spot and derivative markets. The wide availability of commodities typically leads to smaller profit margins and diminishes the importance of factors (such as brand name) other than price.

Comparative advantage

The law or principle of comparative advantage holds that under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage. Comparative advantage is the economic reality describing the work gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress. In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. One does not compare the monetary costs of production or even the resource costs (labor needed per unit of output) of production. Instead, one must compare the opportunity costs of producing goods across countries.David Ricardo developed the classical theory of comparative advantage in 1817 to explain why countries engage in international trade even when one country's workers are more efficient at producing every single good than workers in other countries. He demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries. Widely regarded as one of the most powerful yet counter-intuitive insights in economics, Ricardo's theory implies that comparative advantage rather than absolute advantage is responsible for much of international trade.

Cost-of-production theory of value

In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production (including labor, capital, or land) and taxation.

The theory makes the most sense under assumptions of constant returns to scale and the existence of just one non-produced factor of production. These are the assumptions of the so-called non-substitution theorem. Under these assumptions, the long-run price of a commodity is equal to the sum of the cost of the inputs into that commodity, including interest charges.

English historical school of economics

The English historical school of economics, although not nearly as famous as its German counterpart, sought a return of inductive methods in economics, following the triumph of the deductive approach of David Ricardo in the early 19th century. The school considered itself the intellectual heirs of past figures who had emphasized empiricism and induction, such as Francis Bacon and Adam Smith. Included in this school are William Whewell, Richard Jones, Thomas Edward Cliffe Leslie, Walter Bagehot, Thorold Rogers, Arnold Toynbee, William Cunningham, and William Ashley.

Exchange value

In political economy and especially Marxian economics, exchange value (German: Tauschwert) refers to one of four major attributes of a commodity, i.e., an item or service produced for, and sold on the market. The other three aspects are use value, economic value, and price.Thus, a commodity has:

a value (note the link is to a non-Marxian definition of value)

a use value (or utility)

an exchange value

a price (it could be an actual selling price or an imputed ideal price)These four concepts have a very long history in human thought, from Aristotle to David Ricardo, becoming ever more clearly distinguished as the development of commercial trade progressed but have largely disappeared as four distinct concepts in modern economics. This entry focuses on Marx's summation of the results of economic thought about exchange-value.

Income distribution

In economics, income distribution is how a nation's total GDP is distributed amongst its population. Income and its distribution have always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus, and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital. Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the relationship between income inequality and economic growth.The distribution of income within a society may be represented by the Lorenz curve. The Lorenz curve is closely associated with measures of income inequality, such as the Gini coefficient.

Labor theory of value

The labor theory of value (LTV) is a normative classical theory of value that argues that the price of a good or service should be (morally) equal to the total amount of labor value (wages) required to produce it. Smith and other classical economists saw the price of a commodity in terms of the labor that the purchaser must expend to buy it.

Marx later modified this normative (moral) theory of value to become a new idea, that the economic value or price of something was literally determined by the "socially necessary labor", rather than by the use or pleasure its owner gets from it and its scarcity value. For that reason, LTV is usually associated with Marxian economics. The LTV is central to Marxist theory, which holds that the working class is exploited under capitalism, and dissociates price and value. Marx did not refer to his own theory of value as a "labour theory of value". Neoclassical economics tends to reject the need for a LTV, concentrating instead on a theory of price determined by supply and demand.

Law of rent

The law of rent was formulated by David Ricardo around 1809, and presented in its most developed form in his magnum opus, On the Principles of Political Economy and Taxation. This is the origin of the term Ricardian rent. Ricardo's formulation of the law was the first clear exposition of the source and magnitude of rent, and is among the most important and firmly established principles of economics.John Stuart Mill called it the "pons asinorum" of economics.

Neo-Ricardianism

The neo-Ricardian school is an economic school

that derives from the close reading and interpretation of David Ricardo by Piero Sraffa, and from Sraffa's critique of neo-classical economics as presented in his The Production of Commodities by Means of Commodities, and further developed by the neo-Ricardians in the course of the Cambridge capital controversy. It particularly disputes neo-classical theory of income distribution.

Prominent neo-Ricardians are usually held to include Pierangelo Garegnani, Krishna Bharadwaj, Luigi Pasinetti, Joan Robinson, John Eatwell, Fernando Vianello, Murray Milgate, Ian Steedman, Heinz D. Kurz, Neri Salvadori, Bertram Schefold, Fabio Petri, Massimo Pivetti, Franklin Serrano, Fabio Ravagnani, Roberto Ciccone, Sergio Parrinello, Alessandro Roncaglia, Maurice Dobb, Gilbert Abraham-Frois, Theodore Mariolis and Giorgio Gilibert.

The school partially overlaps with post-Keynesian and neo-Marxian economics.

Political economy

Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie" (household management). The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).In the late 19th century, the term "economics" gradually began to replace the term "political economy" with the rise of mathematical modelling coinciding with the publication of an influential textbook by Alfred Marshall in 1890. Earlier, William Stanley Jevons, a proponent of mathematical methods applied to the subject, advocated economics for brevity and with the hope of the term becoming "the recognised name of a science". Citation measurement metrics from Google Ngram Viewer indicate that use of the term "economics" began to overshadow "political economy" around roughly 1910, becoming the preferred term for the discipline by 1920. Today, the term "economics" usually refers to the narrow study of the economy absent other political and social considerations while the term "political economy" represents a distinct and competing approach.

Political economy, where it is not used as a synonym for economics, may refer to very different things. From an academic standpoint, the term may reference Marxian economics, applied public choice approaches emanating from the Chicago school and the Virginia school. In common parlance, "political economy" may simply refer to the advice given by economists to the government or public on general economic policy or on specific economic proposals developed by political scientists. A rapidly growing mainstream literature from the 1970s has expanded beyond the model of economic policy in which planners maximize utility of a representative individual toward examining how political forces affect the choice of economic policies, especially as to distributional conflicts and political institutions. It is available as a stand-alone area of study in certain colleges and universities.

Prometheus Books

Prometheus Books is a publishing company founded in August 1969 by the philosopher Paul Kurtz (who was also the founder of the Council for Secular Humanism, Center for Inquiry, and co-founder of the Committee for Skeptical Inquiry). Prometheus Books publishes a range of books, focusing on topics such as science, freethought, secularism, humanism, and skepticism. Their headquarters is located in Amherst, New York, and they publish worldwide. The publisher's name was derived from Prometheus, the Titan from Greek mythology who stole fire from Zeus and gave it to man. This act is often used as a metaphor for bringing knowledge or enlightenment.

Authors published by Prometheus include Steve Allen, Molefi Asante, Isaac Asimov, Jeremy Bentham, Rob Boston, Ludwig Feuerbach, Antony Flew, R. Barri Flowers, Martin Gardner, Guy P. Harrison, Sidney Hook, Julian Huxley, S. T. Joshi, Dr. Jack Kevorkian, John Maynard Keynes, Philip J. Klass, Leon Lederman, John W. Loftus, Joe Nickell, Friedrich Nietzsche, Mario Perniola, Robert M. Price, James Randi, David Ricardo, Nathan Salmon, George H. Smith, John Steinbeck IV, Victor Stenger, Tom Toles and Ibn Warraq.

Prometheus Books obtained the bulk of the books and manuscripts of Humanities Press International. It has been building and expanding this into a scholarly imprint named Humanity Books. This imprint publishes academic works across a wide spectrum of the humanities.

In 1992 Uri Geller sued Victor J. Stenger and Prometheus Books for libel. The suit was dismissed and Geller was required to pay more than $20,000 in costs to the defendant.In March 2005, Prometheus Books launched the science fiction and fantasy imprint Pyr. In October 2012 it launched the crime fiction imprint Seventh Street Books.

As of 2006, the company and its various imprints have approximately 1,600 books in print and publish approximately 95–100 books per year. Since its founding, Prometheus Books has published more than 2,500 books.

In 2013 Prometheus Books partnered with Random House in an effort to increase sales and distribution.

Ricardian economics

Ricardian economics are the economic theories of David Ricardo, an English political economist born in 1772 who made a fortune as a stockbroker and loan broker. At the age of 27, he read An Inquiry into the Nature and Causes of Wealth of Nations by Adam Smith and was energized by the theories of economics.

His main economic ideas are contained in On the Principles of Political Economy and Taxation (1817). This set out a series of theories which would later become theoretical underpinnings of both Marx's Das Kapital and Marshallian economics, including the theory of economic rent, the labour theory of value and above all the theory of comparative advantage.

Ricardo wrote his first economic article ten years after reading Adam Smith and ultimately, the "bullion controversy" gave him fame in the economic community for his theory on inflation in 19th-century England. This theory became known as monetarism, the theory that excess currency leads to inflation. He also played a part in the emergence of classical economics, which meant he fought for free trade and free competition without government interference by enforcing laws or restrictions.

Ricardian socialism

Ricardian socialism is a branch of classical economic thought based upon the work of the economist David Ricardo (1772–1823). The term is used to describe economists in the 1820s and 1830s who developed a theory of capitalist exploitation from the theory developed by Ricardo that stated that labor is the source of all wealth and exchange value. This principle extends back to the principles of English philosopher John Locke. The Ricardian socialists reasoned that labor is entitled to all it produces, and that rent, profit and interest were not natural outgrowths of the free market process but were instead distortions. They argued that private ownership of the means of production should be supplanted by cooperatives owned by associations of workers.

This designation is used in reference to economists in the early 19th century that elaborated a theory of capitalist exploitation from the classical economic proposition derived from Adam Smith and David Ricardo stating that labor is the source of wealth. Although Ricardian socialist thought had some influence on Karl Marx's theories, Marx rejected many of the fundamental assumptions of the Ricardian socialists, including the view that labor was the source of all wealth.

Value (economics)

Economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured relative to units of currency, and the interpretation is therefore "what is the maximum amount of money a specific actor is willing and able to pay for the good or service"?

Among the competing schools of economic theory there are differing theories of value.

Economic value is not the same as market price, nor is economic value the same thing as market value. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus". It is easy to see situations where the actual value is considerably larger than the market price: purchase of drinking water is one example.

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