The strongest features of his concepts are:
The discovery and use of complex machinery, a tendency to prolong the working day, the growing incorporation of women's work and child in the production factory.
On the other hand stresses especially the theory of comparative advantage, which advocates the benefits of international trade, also gives the idea that states that the real wages of workers will remain close to subsistence level even if attempts to increase them, known as iron law of wages, in turn based on the ideas of an English economist, from the classical school of thought, considered the father of demography named Thomas Malthus.
Value theory
Ricardo's most famous work is his Principles of Political Economy and Taxation (1817). Ricardo opens the first chapter with a statement of the labour theory of value. Later in this chapter, he demonstrates that prices do not correspond to this value. He retained the theory, however, as an approximation. The labour theory of value states that the relative price of two goods is determined by the ratio of the quantities of labour required in their production. His labour theory of value, however, required several assumptions:
1. both sectors have the same wage rate and the same profit rate;
2. the capital employed in production is made up of wages only;
3. the period of production has the same length for both goods.
Ricardo himself realized that the second and third assumptions were quite unrealistic and hence admitted two exceptions to his labour theory of value:
1. production periods may differ;2. the two production processes may employ instruments and equipment as capital and not just wages, and in very different proportions.
Ricardo continued to work on his value theory to the end of his life.
Rent
Ricardo is responsible for developing 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." The model for this theory basically said that while only one grade of land is being used for cultivation, rent will not exist, but when multiple grades of land are being utilized, rent will be charged on the higher grades and will increase with the ascension of the grade. As such, Ricardo believed that the process of economic development, which increased land utilization and eventually led to the cultivation of poorer land, benefited first and foremost the landowners because they would receive the rent payments either in money or in product.
In a careful analysis of the effects of different forms of taxation, Ricardo concludes in chapters 10 and 12 that a tax on land value, equivalent to a tax on the land rent, was the only form of taxation that would not lead to price increases; it is paid by the landlord, who is not able to pass it on to a tenant.
He stated that the poorest grade land in use has no (land) rent and so pays no land value tax; as prices are determined at this marginal site for the whole economy, prices will not be increased by a land value tax. His analysis distinguishes between rent of (unimproved) land and rent associated with capital improvements such as buildings.
Trade theory and policy: Protectionism
Like Adam Smith, Ricardo was also an opponent of protectionism for national economies, especially for agriculture. He believed that the British "Corn Laws"—tariffs on agriculture products—ensured that less-productive domestic land would be harvested and rents would be driven up. (Case & Fair 1999, pp. 812, 813). Thus, the surplus would be directed more toward feudal landlords and away from the emerging industrial capitalists. Since landlords tended to squander their wealth on luxuries, rather than investments, Ricardo believed that the Corn Laws were leading to the stagnation of the British economy. Parliament repealed the Corn Laws in 1846.
Comparative advantage
International trade attracted much attention from the burgeoning time of economics. Most of the economists who wrote between 1500 and 1750 advocated what is now called Mercantilism. It proposed to increase export and decrease import in order that the state can accumulate precious metals. Mercantilists thought that the plenty of money metal makes country rich. Adam Smith opposed to this idea and preached the gains from trade.
Although Smith preached free trade, he could not show when and how the trade is profitable. It was Ricardo who made it clear by the logic what is now called comparative advantage. His numerical example is given as follows:
Labor necessary to the production
Country \ Product Cloth Wine
England 100 120
Portugal 90 80
Paul Samuelson called these numbers the "four magic numbers". In spite of the fact that Portuguese could produce both cloth and wine with less amount of labor, Ricardo showed that both countries have merits to trade with each other. What determines the direction of trade is not the absolute advantage in the production of goods but the ratio of labor inputs necessary to produce products, thus the denomination of "comparative advantage."
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.
With his highly logical arguments, he has become the theoretical father of the classical political economy. Schumpeter coined an expression Ricardian vice, which indicates that rigorous logic does not provide a good economic theory.[18] 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.
Reference
Case, Karl E.; Fair, Ray C. (1999), Principles of Economics (5th ed.), Prentice-Hall,
Samuel Hollander (1979)). The Economics of David Ricardo. University of Toronto Press.
G. de Vivo (1987). "Ricardo, David," The New Palgrave: A Dictionary of Economics, v. 4, pp. 183–98
Samuelson, P. A. (2001). "Ricardo, David (1772–1823)," International Encyclopedia of the Social & Behavioral Sciences, pp. 13,330–13,334. Abstract.
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