Who was 'David Ricardo'

David Ricardo (1772-1823) was a classical British economist best known for his theory on wages and profit, labor theory of value, theory of comparative advantage, and theory of rents. David Ricardo and several other economists also simultaneously and independently discovered the law of diminishing marginal returns. His most well-known work is the Principles of Political Economy and Taxation (1817).

BREAKING DOWN 'David Ricardo'

Born in England in 1772, one of 17 children, David Ricardo had accumulated a sizable estate worth approximately £1 million at the time despite being disinherited by his Sephardic Jewish family after marrying outside his religion. His wealth came from his success with a business he started that dealt government securities. After retiring at age 42, he served as a member of Parliament. Influenced by Adam Smith, Ricardo held company with other leading thinkers such as James Mill, Jeremy Bentham and Thomas Malthus. In his Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815) Ricardo conceptualized the law of diminishing returns with respect to labor and capital. 

Example of Comparative Advantage

Also, among the notable ideas that Ricardo introduced in Principles of Political Economy and Taxation was the theory of comparative advantage, which argued that countries should specialize in production of goods in which they not only have an absolute advantage but also a relative advantage over other countries in order to promote benefits of international trade. For example, a mutual trade benefit would be realized between China and the U.K. from China specializing in production of porcelain and tea and the U.K. concentrating on machine parts. Ricardo is prominently associated with the net benefits of free trade and detriment of protectionist policies. Ricardo's theory of comparative advantage produced offshoots and critiques that are discussed to this day.

RELATED TERMS
  1. Accelerator Theory

    The accelerator theory is an economic theory whereby as demand ...
  2. Accounting Theory

    Accounting theory is the field of assumptions, methodologies ...
  3. Fixed Capital

    Fixed capital includes the assets - such as property, plant and ...
  4. Market Segmentation Theory

    Market segmentation theory is a theory that there is no relationship ...
  5. Market Economy

    A market economy is a system in which economic decisions and ...
  6. Mechanism Design Theory

    Mechanism design theory is an economic theory that seeks to study ...
Related Articles
  1. Investing

    Seven Controversial Investing Theories

    Find out information about seven controversial investing theories that attempt to explain and influence the market as well as the actions of investors.
  2. Insights

    Seven Decades Later: John Maynard Keynes' Most Influential Quotes

    It's been 72 years since the influential economist died; here are some of his most influential quotes.
  3. Investing

    Oil As An Asset: Hotelling's Theory On Price

    Not sure where oil prices are headed? This theory provides some insight.
  4. Insights

    Basic Concept Of Absolute Advantage

    Absolute advantage is the ability of an individual, country or company to produce a good or service at a lower cost than any competitor. An entity with an absolute advantage requires fewer inputs ...
  5. Insights

    Harvard and MIT Professors Win Nobel Memorial Prize in Economics

    British economist Oliver Hart, 68, and Finnish economist Bengt Holmström, 67, were honored with the award today for their contributions to contract theory.
  6. Trading

    Giants Of Finance: John Maynard Keynes

    This rock star of economics advocated government intervention at a time of free-market thinking.
RELATED FAQS
  1. What Is the Ricardian Vice?

    The Ricardian vice refers to model building and mathematical formulas with unrealistic assumptions. Read Answer >>
  2. What's the difference between agency theory and stakeholder theory?

    Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >>
  3. What is comparative advantage?

    Learn about comparative advantage, and how it is an economic law that is foundation for free-trade arguments. Read Answer >>
  4. Does the tradeoff model or the pecking order play a greater role in capital budgeting?

    Understand the difference between the trade-off theory and the pecking order theory, and learn what these theories tell companies ... Read Answer >>
  5. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ... Read Answer >>
  6. What are some real life examples of absolute advantage?

    Learn about absolute advantage, comparative advantage and their impact on trade through a real-world example involving call ... Read Answer >>
Trading Center