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An essay on David Ricardo's Major Contribution to Economics

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An essay on David Ricardo's Major Contribution to Economics It is generally accepted that Adam Smith was the founder of modern economics, with his 1776 paper, 'The Wealth of Nations'. If that is true then it could be argued that David Ricardo was his successor. He was undoubtedly one of, if not the most famous economist of the 19th century. In this essay I will show how David Ricardo's school of thought influenced and still influences economics around the world today. Ricardo was born in 1772 into a Jewish family from London; he was the 3rd oldest child in a family of 17. He was sent, for a short time, to school in Holland but at the age of 14 was employed by his father, who was a stoke broker in the City of London. At the age of 21 he was disinherited from his family for marrying outside the Jewish faith, to a Quaker. He then proceeded to set up his own company in the City of London and in a short time amassed a huge fortune. His interest in Economics was sparked when he read Adam Smiths' 'The Wealth of Nations' when he was in his late twenties. In 1809 he started writing articles on the bullion controversy and in 1810 released his first major paper on it titled 'The High Price of Bullion, A Proof of the Depreciation of Bank Notes'. ...read more.


The paper was written with the hope of reinstating the gold standard. The debate came about because in 1797, under the threat of French invasion, the government informed banks that they no longer had to honour the standard that any note could be taken to a bank and redeemed for the equivalent amount of gold. This was done to stop a run and was successful in doing so. However the government with this disaster avoided didn't reinstate the gold standard and banks continued to issue notes that they could not convert back. Ricardo argued in his paper that banks, if not forced to stick to the gold standard, would excessively issue bank notes and there would be a surplus supply of money, this would push up the general price and lead to inflation across the board. He was not alone in his thinking and just a few months after the papers release Francis Homer requested a committee be set up to investigate the problem. Ricardo was called to give evidence before this committee and although the gold standard wasn't re-established until an act was passed in 1819 and came into effect in 1821, citing reasons very similar to Ricardo's initial argument ten years earlier. In 1815 came his next major work, titled 'An Essay on the Influence of a Low Price of Corn on Profits'. ...read more.


He used a numerical example to illustrate what he meant and this is shown below: Wine Cloth England 3 2 Portugal 9 4 The figures represent hours per man and as you can see it would appear that Portugal has absolute advantage in both industries and so would not need to trade with England. However if you look at the relative costs you can see that England have a comparative advantage in cloth as to produce 1 unit of cloth, England sacrifice 11/2 units of wine, whereas Portugal would sacrifice 21/4 units of wine. This means that it is in the interest of both countries to produce the good that they have a comparative advantage in and then trade with each other. This empirical evidence is still valid today, and this theory is arguably Ricardo's most famous. To sum up everything that David Ricardo has contributed to economics would a huge challenge, he directly influenced government policy both domestic and foreign during his life and he was the founding member of the most influential school of the 19th century. His theories have influenced Karl Marx, John Keynes and even Milton Friedman and today his economic theories although some time adapted still remain true today. It can therefore be conclude with absolute certainty that David Ricardo has contributed to economics on a level that very few others have or will ever. ...read more.

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