Less well-known than Adam Smith, Ricardo is nevertheless his intellectual and philosophical equal. He is credited alongside Smith with founding the classical school of economics.
Inspired by Smith and driven by his friend, James Mill (father of John Stuart Mill), Ricardo provides an historical bridge between the economic and political liberals, although his own writings are concerned purely with a narrow, quasi-scientific and fiercely practical capitalist analysis of political economy. His approach was heavily influenced by his practical knowledge of the money and foreign exchange markets, and Ricardo stands apart from his fellow economists as one of the very few not only to theorise, but also to succeed in business.
Born in London on 19 April 1772, into a Dutch orthodox Jewish family, Ricardo did not receive a classical training, instead being sent to his uncle’s home in Holland to study Talmud. At the age of fourteen, he returned to England and joined his father at the London stock exchange. He was disowned by his parents, however, when at the age of twenty-one he married a Quaker, Priscilla Wilkinson, and joined the Unitarian Church. As a result, despite his family’s wealth, Ricardo was left to make his own way on the exchange. There, his cool head and sound business judgement enabled him to make a considerable fortune (roughly £700,000), at a time of unprecedented financial upheaval caused by the Napoleonic wars.
While still working at the exchange, Ricardo dabbled in mathematics, chemistry and geology, becoming, in 1807, a founding member of the Geological Society. It was political economy, however, which was to become his main interest when, in 1799 – during a stay in Bath for his wife’s health – he was introduced to Smith’s Wealth of Nations. Political economy provided Ricardo with an opportunity to combine his taste for science with his personal and practical knowledge of the money markets.
His first pamphlet, The High Price of Bullion, a Proof of the Depreciation of Bank Notes, was published in 1810 and caused significant controversy, leading first to the establishment of the Parliamentary bullion committee and then, eventually, to the resumption of cash payments. In 1815, a second pamphlet on the impact of low corn prices put the case in favour of free trade in grain products, thus prefiguring the liberal position on the abolition of the corn laws three decades later. Ever a realist, however, Ricardo accepted that a moderate duty might be required to counteract special burdens upon agriculture.
In 1817, Ricardo was finally persuaded to publish a comprehensive exposition of his political theories. He achieved this in his magnum opus, The Principles of Political Economy and Taxation. Building directly on Smith’s work, Principles developed Ricardo’s theories of economical and secure currency, thus laying the basis of the monetary policy of capitalist nations for more than a hundred years. In his thesis, Ricardo set out the argument against protectionist policies and sought to elevate his case against the corn laws to a generally applicable principle. He argued that an increase in wages would always lead to an absolute reduction in profits whether or not employers attempt to protect profits through higher prices. Ricardo believed that such action would simply devalue the money earned.
He is chiefly remembered today for his exposition of the principle of comparative advantage, the idea that nations can maximise their output and wealth by specialising in the production of goods at which they are relatively most efficient, trading with other countries to realise the gains from such specialisation. In the early nineteenth century, this suggested that Britain should concentrate on manufactured goods, selling them abroad to purchase food – which indeed became the basis for the long mid-Victorian economic boom.
In 1819, Ricardo became a Member of Parliament for the pocket Irish borough of Portarlington. He was re-elected in 1820 and held the seat until his death on 11 September 1823, at the age of fifty-one. Although an independent, Ricardo tended to support the Radicals, using his position rigorously to oppose religious persecution, and his appointment to a select committee to advocate reform of the corn laws.
In 1822, Ricardo declared: all taxes are bad and, except to avoid a deficit, I will vote for none, considering that a surplus would be an insuperable temptation to increase expenditure. One can assume that he would not have favoured a penny on income tax to pay for education ….
The influence of Ricardo’s Principles can clearly be seen in the writings of John Stuart Mill and Karl Marx, and although he was heavily criticised by Keynes, his attachment to free and international trade has formed a central tenet of Liberalism for the last century and a half.
Ben Rich was Vice Chair of the Liberal Democrats Federal Policy Committee at the time of writing this piece. He was previously Deputy Policy Director for the party, 1991-95 and Chair of the Student Liberal Democrats in 1989.