1902 Encyclopedia > David Ricardo

David Ricardo
Political economist

DAVID RICARDO (1772-1823), a celebrated political economist, was born at London 19th April 1772. He was the third son of his father, a Jewish gentleman of Dutch birth, whose family, it is said, had formerly resided in Portugal. The elder Ricardo bore an honourable character, and was a successful member of the Stock Exchange. The son was placed for two years at a commercial school in Holland, and at the age of fourteen entered his father's office, where he showed much aptitude for business. About the time when he attained his majority he abandoned the Hebrew faith, and conformed to the Anglican Church, a change which seems to have been connected with his marriage to Miss Wilkinson, which took place in 1793. In consequence of the step thus taken he was separated from his family and thrown on his own resources. His ability and uprightness were known, and he at once entered on such a successful career in the profession to which he had been brought up that at the age of twenty-five, we are told, he was already rich. He now began to occupy himself with scientific pursuits, and gave some attention to mathematics as well as to chemistry and mineralogy; but, having met with Adam Smith's great work in 1799 at Bath, whither he had gone for his wife's health, he threw himself with ardour into the study of political economy.

His first publication (1809) was Tlw High Price of Bullion a Proof of the Depreciation of Bank Notes. This tract was an expansion of a series of articles which the author had contributed to the Morning Chronicle. It gave a fresh stimulus to the controversy, which had for some time been discontinued, respecting the resumption of cash payments. Ricardo argued that the premium on bullion and the unfavourable state of the exchanges could only be explained by the depreciation of the inconvertible paper money then in circulation, which had fallen 25 per cent, below the value of specie in consequence of its overissue. A committee to consider the whole question, commonly known as the Bullion Committee, was nominated by the House of Commons in February 1810. Amongst the members were Francis Horner, who was appointed chairman, Alexander Baring (afterwards Lord Ashburton), William Huskisson, and Henry Thornton, author of the well known Inquiry into the Nature and Effects of the Paper Credit of Great Britain (1802). The report, which was presented to parliament in June of the same year, was the joint production of Horner, Huskisson, and Thornton. It asserted the same views which Ricardo had put forward, and recommended the repeal of the Bank Restriction Act. Notwithstanding this, the House of Commons of the following year, on the motion of Mr Vansittart (afterwards Lord Bexley), declared in the teeth of the facts that paper had undergone no depreciation, and negatived Horner's resolutions founded on the report of the committee. One of the strongest opponents of Ricardo's opinions was Mr Bosanquet; he published in 1811 a pamphlet entitled Practical Observations on the Report of the Bidlion Committee, and this drew forth from Ricardo an elaborate reply. Both this tract and its predecessor attracted much attention. They propound no new economic principles, but are based on the doctrines of Smith. They do not give such a systematic and complete view of the subject as Huskisson's well-known tract (The Question respecting the Depreciation of the Currency Stated and Examined, 1810), but they are well reasoned, and, as to their main conclusions, convincing. It has, however, been maintained that there were features of the case which Ricardo did not sufficiently take into account, especially the demand for bullion created by the necessity of meeting the foreign payments of England, which, in consequence of the Continental system, could not be otherwise discharged.

In 1811 he made the acquaintance of James Mill, whose introduction to him arose out of the publication of Mill's tract entitled Commerce Defended. The conversation of Ricardo's new friend seems to have largely influenced his views ; Bentham indeed declared him to be Mill's intellectual child; but, whilst Mill doubtless largely affected his political ideas, he was, on his side, under obligations to Ricardo in the purely economic field; Mill said in 1823 that he himself and J. B. M'Culloch were Ricardo's disciples, and, he added, his only genuine ones.

In 1815, when the Corn Laws were under discussion, he published his Essay on the Influence of a Low Price of Corn on the Profits of Stock. This was directed against a recent tract by Malthus entitled Grounds of an Opinion on the Policy of Restraining the Free Importation of Foreign Corn. The reasonings of the essay are based on the theory of rent which has often been called by the name of Ricardo; but the author distinctly states that it was not due to him. "In all that I have said concerning the origin and progress of rent I have briefly repeated, and endeavoured to elucidate, the principles which Malthus has so ably laid down on the same subject in his Inquiry into the Nature and Progress of Rent. " We now know that the theory had been fully stated, before the time of Malthus, by Anderson; it is in any case clear that it was no discovery of Ricardo. Even the conception of the soils of a country as comparable to a series of machines of different original powers, though capable of improvement by the application of capital, is quoted from Malthus. Ricardo states in this essay a set of propositions, most of them deductions from the theory of rent, which are in substance the same as those afterwards embodied in the Principles, and regarded as characteristic of his system, such as that increase of wages does not raise prices; that profits can be raised only by a fall in wages and diminished only by a rise in wages; and that profits, in the whole progress of society, are determined by the cost of the production of the food which is raised at the greatest expense. It does not appear that, excepting the theory of foreign trade, anything of the nature of fundamental doctrine, as distinct from the special subjects of banking and taxation, is laid down in the Principles which does not already appear in this tract. We find in it, too, the same exclusive regard to the interest of the capitalist class, and the same identification of their interest with that of the whole nation, which are generally characteristic of his writings. "Rent," he says, "is in all cases a portion of the profits previously obtained on the land," a proposition by which, for the sake, it is to be feared, of creating a political prejudice, he obscures his own doctrine that true rent can never be a part of profit; and he alleges what is in a sense true, but has a most invidious effect,—that "the interest of the landlord is always opposed to the interest of every other class in the community," though the existence of a distinct landlord class is by no means a necessity, and the owner of rent, which somebody must own, could not, even by entirely remitting it, alter the price of food, or increase the profits of the capitalist, except by presenting him with a gift to which he has no economic claim. At the close of the tract he endeavours to show in opposition to Malthus that the danger of dependence on foreign supply for a large part of our food, and the losses on invested capital which would result from a legislative change, could not be so serious as to counter-balance the advantages arising from a free importation. Both, parts of this proposition are probably true; but he does not establish the first in a very satisfactory manner.

In the Proposals for an Economical and Secure Currency (1816) he first disposes of the chimera of a currency without a specific standard, and pronounces in favour of a single metal, with a preference for silver, as the standard. He then puts forward a scheme which had been already briefly indicated in the appendix to the 4th edition (1811) of his High Price of Bullion. This was that the bank should be obliged to deliver on demand, not coin, but uncoined bullion or gold standard bars, in exchange for its notes, whenever the notes presented together for ^payment reached a moderate fixed amount. The consequence would be that, all the smaller payments being made in the cheap medium, paper, the country would enjoy the profit derivable from the metallic currency used as a capital; the wear of the coinage, too, would be prevented, and a saving thus effected. By this method the public would secure itself against any variations in the value of the currency beyond those to which the standard itself is necessarily subject; and, at the same time, the circulation would be carried on in the least expensive way. Thus, whilst the use of the precious metals as the medium of exchange was, in the earlier stages of social life, one of the most important steps towards the improvement of commerce and the advancement of civilization, it is proposed to us, and on grounds which it is difficult to gainsay, to banish them once more from such employment in almost all the internal transactions of a country. A kindred revolution, tending to the further elimination of metallic money, Jevons has spoken of as "a return to barter"; but that expression is misleading, for in the modern system of settlement by writing off liabilities against each other a metallic standard is always supposed, and lies at the basis of every transaction, whereas in the primitive method of dealing commodities were directly compared. Bicardo's plan was in operation for some time, but was then given up on the ground, urged by the bank, of the frequent forgery of one pound notes, and the consequent necessity of replacing them with coin—a very insufficient reason, as experience demonstrates, though a good argument in favour of such an improved manufacture of notes as would effectually defeat fraudulent imitation. In a later tract (Plan for a National Bank) Bicardo proposes that one pound notes should be confined to the country districts. The general plan has been objected to on the ground that it would not provide for a sufficient metallic reserve to meet sudden emergencies arising from the necessity of foreign payments.

Ricardo's chief work, Principles of Political Economy and Taxation, appeared in 1817. A full account of the general theory expounded in this treatise has been given under POLITICAL ECONOMY ; a very brief statement must here suffice. The fundamental doctrine is that, on the hypothesis of free competition, exchange value is determined by the labour expended in production,—a proposition not new, nor, except with considerable limitation and explanation, true, and of little practical use, as " amount of labour " is a vague expression, and the thing intended is incapable of exact estimation. Ricardo's theory of distribution has been briefly enunciated as follows :—" (1) the demand for food determines the margin of cultivation ; (2) this margin determines rent; (3) the amount necessary to maintain the labourer determines wages; (4) the difference between the amount produced by a given quantity of labour at the margin and the wages of that labour determines profit." These theorems are too absolutely stated, and require much modification to adapt them to real life. His theory of foreign trade has been embodied in the two propositions—"(1) international values are not determined in the same way as domestic values; (2) the medium of exchange is distributed so as to bring trade to the condition it would be in if it were conducted by barter." His views on currency and banking will be gathered from the present article.

A considerable portion of the work is devoted to a study of taxation, which requires to be considered as a part of the problem of distribution. A tax is not always paid by those on whom it is imposed; it is therefore necessary to determine the ultimate, as distinguished from the immediate, incidence of every form of taxation. Smith had already dealt with this question; Ricardo develops and criticizes his results. The conclusions at which he arrives are deduced from the theory of rent and from the assumptions of a uniform rate of profits and of a rate of wages coincident with the necessary subsistence of the labourer. They are in the main as follows :—a tax on raw produce falls on the consumer, but will also diminish profits; a tax on rents on the landlord; taxes on houses will be divided between the occupier and the ground landlord ; taxes on profits will be paid by the consumer, and taxes on wages by the capitalist. These propositions of course participate in the infirmity of the premises from which they are deduced, or must at least be taken with limitations corresponding to those to which the premises are subject. Ricardo adopts and even extols as a " golden maxim " the shallow dictum of Say, that " the very best of all plans of finance is to spend little, and the best of all taxes is that which is of least amount."

In 1819 Ricardo, having retired from business and become a landed proprietor, entered parliament as member for Portarlington. He was at first diffident and embarrassed in speaking, but gradually overcame these difficulties, and was heard with much attention and deference, especially when he addressed the house on economic questions. He probably contributed in a considerable degree to bringing about the change of opinion on the question of free trade which ultimately led to the legislation of Sir Bobert Peel on that subject.

In 1820 he contributed to the supplement of the Encyclopaedia Britannica (6th ed.) an Essay on the Funding System. In this, besides giving an historical account (founded on Dr Robert Hamilton's valuable work On the National Debt, 1813, 3d ed., 1818) of the several successive forms of the sinking fund, he urges that nations should defray their expenses, whether ordinary or extraordinary, at the time when they are incurred, instead of providing for them by loans; and, not believing that the system of a sinking fund would ever be consistently and perseveringly carried out, he maintains that the national debt should be paid off by a tax on property—an operation which he thought might be completed in two or three years during peace. Thus, by a single effort we might, he says, get rid of those great sources of demoralization, the customs and the excise, and our commerce would be freed from " all the vexatious delays and interruptions which our present artificial system imposes upon it."

In 1822 he published a tract On Protection to Agriculture, which is an able application to controversy of the general principles laid down in his systematic work. Its arguments and conclusions are therefore subject to the same limitations which those fundamental principles require. He does not advocate an absolutely free importation of corn, but proposes, in consideration of the special burdens on agriculture, to impose on the foreign commodity a duty equivalent to the exclusive taxes imposed on home growers, as well as to allow a drawback on exportation equal to the duty. The only point of much interest in the tract, apart from the question of protection, is the assertion of the doctrine that a high rate of interest is beneficial to a country—a view curiously opposed to that held by Child and others in the 17th century. "Profits and interest," he says, "cannot be too high. Nothing contributes so much to the prosperity and happiness of a country as high profits." It seems to follow that, the productiveness of labour being given, wages cannot be too low, which can only be true on the supposition, tacitly assumed by Ricardo in many places, that wages coincide with the cost of the labourer's maintenance. The proposition, too, appears to lead to economic pessimism, for, according to his own doctrines, the rate of profits must inevitably decline in the course of the history of any society.

In his Plan for the Establishment of a National Bank, published posthumously in 1824, he proposes that the issue of the paper currency should be taken out of the hands of the Bank of England, and vested in commissioners appointed by the Government, but not removable except on an address from one or both Houses of Parliament. These functionaries should in no case lend money to the ministers of the crown, who, when they wanted it, should raise it by taxation or have recourse to the general market. The commissioners would act as bankers to all the public departments, but would be precluded from fulfilling the same office for any corporation or individual whatever. Their great business would be to regulate the issue of paper by the price of bullion, so as to keep the value of the former equal to that of the coins it would represent. The tract describes in detail the measures to be adopted for the introduction and working of the new system. A certain step towards realizing the objects of this scheme, though on different lines from Ricardo's, was taken in Sir Robert Peel's Act of 1844, by which the discount business of the bank was separated from the issue department.

Ricardo died on the 11th September 1823, at his seat (Gatcomb Park) in Gloucestershire. He was only fifty-one years of age, and there had been nothing in his general health to give rise to apprehension; the cause of death was a cerebral affection resulting from disease of the ear. He was much regretted, as he had been highly esteemed, both in public and private life. His character is represented in very favourable colours by those who knew him best. He is described as modest, candid, and ever open to conviction,—as affectionate in his family, steady in his friendships, and generous and kind in his wider personal relations. James Mill, who was intimately acquainted with him, says (in a letter to Napier of November 1818) that he knew not a better man, and on the occasion of his death published a highly eulogistic notice of him in the Morning Chronicle. A lectureship on political economy, to exist for ten years, was founded in commemoration of him, M'Culloch being chosen to fill it.

In forming a general judgment respecting Eicardo, we must have in view not so much the minor writings, to which this article has been in great part devoted, as the Principles, in which his economic system is expounded as a whole. By a study of this work we are led to the conclusion that he was an economist only, not at all a social philosopher in the wider sense, like Adam Smith or John Mill. He had great, acuteness, but little breadth. For any large treatment of moral and political questions he seems to have been alike by nature and preparation unfitted ; and there is no evidence of his having had any but the most ordinary and narrow views of the great social problems. His whole conception of human society Is material and mechanical, the selfish principle being regarded, after the manner of the Benthamites, as omnipotent, not merely in practical economy, but, as appears from his speech on the ballot and his tract on reform, in the whole extent of the social field. Itoscher calls him '' ein tiefer Menschenkenner "; it would be difficult to characterize him more inaptly. The same writer remarks on his " capitalistic " tone, which, he says, becomes " mammonistic " in some of his followers ; but the latter spirit is already felt as the pervading atmosphere of liicardo's works. He shows no trace of that hearty sympathy with the working classes which breaks out in several passages of the Wealth of Nations ; we ought, perhaps, with Held, to regard it as a merit in Ricardo that he docs not cover with fine phrases his deficiency in warmth of social sentiment. The idea of the active capitalist having any duties towards his employes!never seems to occur to him ; the labourer is, in fact, merely an instrument in the hands of the capitalist, a pawn in the game he plays. His principal work is the ultimate expression of what Comte calls "l'ignoble métaphysique qui pretend étudier les lois genérales de Fordre materiel en l'isolant de tout autre." Against such a picture of industrial life as a mere sordid struggle of conflicting interests contemporary socialism is the necessary, though formidable, protest ; and the leaders of that movement have eagerly seized his one-sided doctrines and used them for their own ends.

He first introduced into economics on a great scale the method of deduction from a priori assumptions. The conclusions so arrived at have often been treated as if they were directly applicable to real life, and indeed to the economic phenomena of all times and places. But the truth of Ricardo's theorems is now by his warmest admirers admitted to be hypothetical only, and they are stated as applying, at most, to the existing highly-developed condition of European, and especially of English, commerce. Bagehot, however, seems right in believing that Ricardo himself had no consciousness of the limitations to which his doctrines are subject. Be this as it may, we now see that the only basis on which these doctrines could be allowed to stand as a permanent part of economic science is that on which they are placed by Roscher, namely, as a stage in the preparatory work of the economist, who, beginning with such abstractions, afterwards turns from them, not in practice merely, but in the completed theory, to real life and men as they actually are or have been. But it may well be doubted whether it is not better to discard them altogether, and begin, as we end, with an historical method, which, it may be added, will of necessity lead to the introduction of those moral and social considerations which would otherwise bo almost certainly overlooked.

The criticisms to which Ricardo's general economic scheme is open do not hold with respect to his treatment of the subjects of currency and banking. These form precisely that branch of economics into which moral ideas (beyond the plain prescriptions of honesty) can scarcely be said to enter, and where the operation of purely mercantile principles is most immediate and invariable. They were, besides, the departments of the study to which Ricardo's early training and practical habits led him to give special attention ; and they have a lasting value independent of his systematic construction.

Ricardo's collected works were published, with a notice of his life and writings, by J. R. M'Culloch in 1S4G. A French translation of the Principles by Constancio, with notes by Say, appeared in 1S18; the whole works, translated by.Constancio and Fonteyraud, form vol. xiii.(lS47)of the Collectiondes Principaux Économistes, where they are accompanied by the notes of Say, Malthus, Sismondi, Rossi, etc. The Principles was first "naturalized " in Germany, says Roscher (though another version by Von Schmid had previously appeared), by Edward Baumstark in his David Ricardo's Grundgesetze der Volkswirthschaft und der Besteuerung übersetzt und erläutert (1S37), which Roscher highly commends, not only for the excellence of the rendering, but for the value of the explanations and criticisms which are added. (J. K. I.)


1 The same assumption had been previously made by the Physiocrats. Turgot says, " En tout genre de travail, il doit arriver et il arrive que le salaire de l'ouvrier se borne à ce qui est nécessaire pour se procurer sa subsistance."

The above article was written by: J. K. Ingram LL.D.

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