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Monday, April 10, 2017

David Ricardo and mathematical economics


Photo source: Wikimedia Commons, Thomas Phillips


David Ricardo is best known his 1817 book The Principles of Political Economy and Taxation. This book is similar to The Wealth of Nations because it provides a complete description of how an economy works. Ricardo is often criticized for being too abstract in his analysis, yet he is also praised for incorporating numerical analysis into economics. The rest of this post is some quotes regarding Ricardo.




John Kenneth Galbraith:

"David Ricardo is Adam Smith's only serious rival for the title of founding father of economics." (YouTube: The Age of Uncertainty)


Abstract analysis


Jean-Baptiste Say:

"It is, perhaps, a well founded objection to Mr. Ricardo, that he sometimes reasons upon abstract principles to which he gives too great a generalization." (A Treatise on Political Economy, 1832)


John Kenneth Galbraith:

"Ricardo was a stockbroker, a member of parliament, a man with superb clarity of mind and of deep obscurity of prose." (YouTube: The Age of Uncertainty)


Paul Samuelson:

"It was David Ricardo himself who believed that Adam Smith’s basic system was flawed at its core. Indeed, it was this critical view of Smith that caused Ricardo to write his Principles. The economists’ world, blinded by Ricardo’s reputation for brilliance and unable to recognize in his murky exposition the many non sequiturs contained there, accepted Ricardo’s indictment at its face value." (The Overdue Recovery of Adam Smith's Reputation as an Economic Theorist, 1992)


Theory of value



"Utility then is not the measure of exchangeable value, although it is absolutely essential to it." (Principles of Political Economy and Taxation, 1817)



"Possessing utility, commodities derive their exchangeable value from two sources: from their scarcity, and from the quantity of labour required to obtain them." (Principles of Political Economy and Taxation, 1817)


System of prices, rent and labor



"Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil." (Principles of Political Economy and Taxation, 1817)



"Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labour is that price which is necessary to enable the labourers, on with another, to subsist and to perpetuate their race, without either increase or diminution." (Principles of Political Economy and Taxation, 1817)



"Adam Smith, and other able writers to whom I have alluded, not having viewed correctly the principles of rent, have, it appears to me, overlooked many important truths, which can only be discovered after the subject of rent is thoroughly understood." (Principles of Political Economy and Taxation, 1817)



"Under Ricardo's system, the workers did not get the product, nor did the capitalists, the wealth went to the landlords. The same pressure of people on land that reduced wages shoved up rents and so the poorer the people, the richer the landlords. Nor could anything be done about it." (YouTube: The Age of Uncertainty)



"[In reference to Ireland's economic development] as Ricardo foretold, the landlords prospered, the tenants became evermore numerous, ever more poor." (YouTube: The Age of Uncertainty)


Comparative advantage



"Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world." (Principles of Political Economy and Taxation, 1817)