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Economists - David Ricardo (1772-1823)

David Ricardo had a varied upbringing. He was born in 1772 and was the third of 17 children. His parents were very successful and his father was a wealthy merchant banker. They lived at first in the Netherlands and then moved to London. David himself had little formal education (obviously not a modern role model!) and went to work for his father at the age of 14. However, when, at the age of 21, he married a Quaker (against his parents wishes) he was disinherited and so set up on his own as a stockbroker. He was phenomenally successful at this and was able to retire at 42 and concentrate on his writings and politics.

He developed many important areas of economic theory and was great friends with other classical economists - Thomas Malthus and Jean-Baptiste Say. Along with Malthus he was fairly pessimistic about the long-term prognosis for society, and so has been proved well and truly wrong on that score (so far?). However, much of the theory he developed is still used and taught today.

Along with many other Classical economists, the titles of Ricardo's works do not have the ring of best-sellers about them, but in their time (and now!) they are judged to be very significant. Because of his background in the money markets and Stock Exchange, much of his early work was on these subjects. His more significant works were on market economics though:

  • Essay on the influence of the low price of corn on the profits of stock (1815)
  • The principles of political economy and taxation (1817)

Ricardo developed key theories, that are still important in economics courses today like:

  • International trade theory (comparative advantage)

Ricardo's theory on international trade focused on comparative costs and looked at how a country could gain from trade when it had relatively lower costs (i.e. a comparative advantage). The original example focused on the trade in wine and cloth between England and Portugal. Ricardo showed that if one country produced a good at a lower opportunity cost than another country, then it should specialize in that good. The other country would therefore specialize in the other good, and the two countries could then trade. It's not too difficult to work out which good Portugal should specialize in - wine or cloth?! The same would almost certainly be true today.

If all countries specialized where they had a comparative advantage, then the level of world welfare should increase.

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