• Family of Portuguese Jewish refugees emigrated to England

  • David elopes with a Quaker woman, converts to Unitarianism, gets disowned by his family

• A stockbroker, became independently wealthy and retired

  • careful investment earned him a large fortune (approx £1m)
  • became quite a large landowner himself (consider his views!)

• Friends and Political Economy Club-mates with other Classical Economists: Torrens, Mills, Malthus, etc.

• Became a Member of Parliament for last 4 years of his life

• Died suddenly at 51, followers take over

• First writes pamphlets in response to British political crises

  • The High Price of Bullion, a Proof of the Depreciation of Bank Notes (1810)
  • Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815)

• Then writes his master treatise

  • On the Principles of Political Economy and Taxation (1817)

• A flurry of letters between him and Malthus (1810-1823)

  • The Works and Correspondence of David Ricardo (1951-73, collected by Neo-ricardian Piero Sraffa)

• Extend Adam Smith’s primitive idea of labor as measuring the price (beaver & deer example)

• Continuing to extend cultivation will lower value due to diminishing returns!
  • Prohibiting importations is like prohibiting superior land at home!

• Ricardo strongly disagrees with Malthus

• Only Malthus’ reason #3 makes any sense to Ricardo, rent is only paid because of the “[fickleness] of nature in providing fertile land”

  • rent is merely value transferred away from capitalists to landlords

“To produce the wine in Portugal, might require only the labour of 80 men for one year, and to produce the cloth in the same country, might require the labour of 90 men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of 90 men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.”

• Even in the presence of absolute advantage (one country is more efficient at producing all goods), still better for them to specialize

  • A high opportunity cost of producing everything

• Pay others to perform a task, or purchase a good, and specialize in producing goods where you have the lowest opportunity cost

• This is the principle of comparative advantage

• Ricardo called this the principle of “comparative cost”; Torrens calls it “comparative advantage” (and to be fair, Torrens wrote about it first)

  • in favor of free trade (import cheaper corn!)
  • preventing imports is like preventing superior production at home!

“Let us suppose, that there are, in England, unreclaimed districts, from which corn might be raised at as small an expense of labour and capital, as from the fertile plains of Poland. This being the case, and all other things the same, the person who should cultivate our unreclaimed districts, could afford to sell his produce at as cheap a rate as the cultivator of Poland; and it seems natural to conclude, that if industry were left to take its most profitable direction, capital would be employed in raising corn at home, rather than bringing it in from Poland at an equal prime cost, and at much greater expense of carriage.”

“But this conclusion, however obvious and natural it may, at first sight, appear, might, on closer examination, be found entirely erroneous. If England should have acquired such a degree of skills in manufacturews, that, with any given portion of her capital, she could prepare a quantity of cloth, for which the Polish cultivator would give a greater quantity of corn, than she [England] could, with the same portion of capital, raise from her own soil, then, tracts of her territory, though they should be equal, nay, even though they should be superior, to the lands in Poland, will be neglected; and a part of her supply of corn will be imported from that country.”

“When a country can either import a commodity or produce it at home, it compares the cost of producing at home with the cost of procuring from abroad; if the latter cost is less than the first, it imports. The cost at which a country can import from abroad depends, not upon the cost at which the foreign country produces the commodity, but upon what the commodity costs which it sends in exchange, compared with the cost which it must be to produce the commodity in question, if it did not import it.”

“[I]f there were nothing in the whole process but a transfer; if whatever is lost by the consumer and by the capitalist were gains by the landlord; there might be robbery, but there would not be waste, there might be a worse distribution of the national wealth, but there would be no positive diminution of this aggregate wealth.”

“[But the Corn Laws] occasion in all cases an absolute loss, greatly exceeding the gain which can be derived from them by the receivers of rent; and for every pound which finds its way in the pockets of the landlords...the community is robbed of several.”

“It would be better, however, to have a repeal of the Corn Laws, even clogged by a compensation [to landlords], than to not [repeal] at all; and if [reapeal with compensation to landlords] were our only alternative, no one could complain of a chance, by which, though an enormous amount of evil would be prevented, no one would lose.”

"[Repealing the Corn laws would solve four problems.] First, it would guarantee the prosperity of the manufacturer by affording him outlets for his products. Second, it would relieve the Condition of England question by cheapening the price of food and ensuring more regular employment. Third, it would make English agriculture more efficient by stimulating demand for its products in urban and industrial areas. Fourth, it would introduce through mutually advantageous international trade a new era of international fellowship and peace. The only barrier to these four beneficent solutions was the ignorant self-interest of the landlords, the "bread-taxing oligarchy, unprincipled, unfeeling, rapacious and plundering."

• When people use the term “rent” in ordinary language, they mean “contract rent” (what you pay your landlord)

  • this constitutes multiple things: profit, payment for their improvements to land, and pure (Ricardian) rents

• Ricardian rents or Scarcity rents: Ricardo’s careful definition of rent “the use of the original and indestructible powers of the soil”

  • i.e. permission for using something that already exists (and the landlord did not produce)!
  • only exists because of a fixed supply (of land)

• Can apply Ricardian Rents to anything in scarce supply:

  • talent, intellectual property, monopoly!