In this essay, there is going to be an exposition of the main theories that David Ricardo exposed in his book “Principles of Political Economy and Taxation”; all this introduced by a brief biography of the author.
One of the most important theories of Ricardo is about the international trade and the comparative advantage. The question that is going to be discussedin the empirical part of the essay is if that theory matches, if he was right in his conclusions and what he should have done.
BIOGRAPHY OF DAVID RICARDO
David Ricardo was an English man born in London on 19th April 1772. He was the third son of a Sephardic Jewish Family who emigrated from Holland to England.
His first contact with economics was when he was 14, when he started to work as anemployee of his father, a stockholder, in the London Stock Exchange.
Due to his non-Jewish marriage, he was disinherited and did not talk again with his parents. He became independent and he worked as a stockholder until 1814, when at the age of 42 he retired from business with a huge fortune. However, after this he became also a lieutenant and a Member of the Parliament (House of Commons)representing Portarlington (Ireland).
It may result curious that David Ricardo became interested in economic’ theories when in 1799, during a vacation with his wife, he read Adam Smith’s “The Wealth of Nations”.
Ten years later, his first opinions about economy were published, but it was in 1817 when his reputation rose, due to the release of his most famous book called “Principles of Political Economyand Taxation”.
Ricardo is now considered one of the most influential of the classical economists. He was influenced by Adam smith and Jeremy Bentham and was he a friend of Thomas Malthus with whom he had long conversations about economics subjects.
He died on 11th September 1823 at the age of 51.
DAVID RICARDO’S THEORIES
* Labour theory of value
Ricardo makes a difference between “market”prices and “value” prices, understanding that market prices can vary very fast and are determined by the demand-supply of the good sold and that “value” prices are determined by the relative quantity of labour used to create the good over another good. We can deduce that the value of a given good increases when the labour used is greater. There are some exceptions: some goods which value is onlydetermined by its scarcity and cannot be produced with any quantity of labour.
He considers that the labour employed previously in order to produce a good, for example, the tools or the machinery required has to be distributed in the final value of the good, for example in his book he gives to the reader an example of a fisherman. The labour value of the fish he has caught also includes the timethat he (or another man) has spent to make the fishing rod and the boat.
When there is a new skill that allows obtaining a good in less time, the quantity of labour decreases, and also the value of that good with respect to other goods.
The problem that Ricardo founds is that supposing that the value of the goods changes, it can be interesting to know which one has increased its value and whichone has decreased its. The key would be to found a fixed pattern with which compare the value variation. He concludes that it is impossible to find that pattern.
* Rent theory
In this theory, David Ricardo was inspired by Malthus. He thinks that the rent is the compensation for the use of the floor because it is finite. He also defines a differentiation between different types of land:productive land and less-productive land. As we have studied in the above paragraph, the value is determined by the quantity of labour employed. It is logical that the first free land to be used will be the most fertile and there is not going to be any rent. Once the most fertile land will be in used, and due an increase in the demand, because of a growth of the population, a second degree of land...