| a British political economist, one of the most influential of the classical
economists along with Thomas Malthus, Adam Smith and James Mill. He was also a politician, and a member of the Parliament of Great Britain and Ireland | DAVID RICARDO |
| Adam Smith's Wealth of Nations (1776) | The main purpose of Adam Smith's The Wealth of Nations
was to further the understanding of political economy (the role of government in economic policy). |
| Sole purpose of Adam Smith | ADAM SMITH wanted to encourage governments to adopt a free-market approach to production and commerce. And it was there that his interest in economics began. Later, he discussed economic theories with his friends, particularly James Mill. Mill persuaded Ricardo to write them down, and Ricardo agreed |
| The first book he published | The High Price of Bullion, a Proof of the Depreciation of Bank
Notes (1810) |
| The High Price of Bullion, a Proof of the Depreciation of Bank
Notes (1810) | refueled the controversy then surrounding the Bank of England: freed from
the necessity of cash payment (strains from the wars with France prompted the government to bar the Bank of England from paying its notes in gold), both the Bank of England and the rural banks had increased their note issues and the volume of their lending. |
| In 1815 Ricardo published | “An Essay on the Influence of a Low Price of Corn on the Profits of
Stock” which regulated grain imports and exports Parliament raised the duty on imported wheat due to a drop in wheat prices. in which he argued that raising the tariff on grain imports tended to increase the rents of the country gentlemen while decreasing the profits of manufacturers. |
| In 1817 he published | “Principles of Political Economy and Taxation” Taxation The book concludes that land rent grows as the population increases. It also presents the theory of comparative advantage, the theory that free trade between two or more countries can be mutually beneficial, even when one country has an absolute advantage over the other countries in all areas of production. |
| RICARDIAN THEORY | Theory of Rent
The theory to explain the origin and nature of economic rent. He defined rent as “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.” In his theory, rent is nothing but the producer’s surplus or differential gain and it is found in land only. At the time of Ricardo land was primarily used for agriculture for cultivating corn. |
| Rent exists because of | >Diminishing returns in agriculture
>The rent can appear because of two reasons:
appears due to limited supply of land – known as Scarcity Rent
>Rent appears due to differences in fertility and hence difference in productive the capacity of land – known as Differential Rent |
| Ricardo’s Theory of Value | value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation (wages) which is paid for that labor |
| Ricardo’s Distribution Theory | >Distribution theory explains how income is distributed in society. How to distribute the national income.
>Functional Distribution of Income: There are three factors of production land, labor, and capital goods (such as shovels) and three classes of people landlords, workers, and capitalists. Landlords earn rent, workers earn wages, and capitalists earn profits. Ricardo wanted to show how the total output of society is distributed among wages, rent, and profits.
>Personal distribution: held that the landlords would receive an increasing part of the national income while capitalists would get less and less and that this shift in distribution would lead to economic stagnation. |
| Comparative Advantage | The ability of an economy to produce a specific good or service at a lower opportunity cost than its trading counterparts is known as comparative advantage. Comparative advantage allows a corporation to sell goods and services at a cheaper cost than its competitors while maintaining higher profit margins. One of the most essential notions in economic theory is comparative advantage, which is a central premise of the argument that all actors, at all times,
can gain from cooperation and voluntary trade. It is also a fundamental principle in international trade theory. |
