Stockbroker, Economist (1772-1823)
Arguably the greatest economist of his generation, David Ricardo is renowned for “inventing the technique of economics” after his groundbreaking application of a comparative static method of thinking to the analysis of economic equilibria.
Ricardo is most widely known for his theory of comparative advantage in which he explains how foreign trade can create value for both parties, even when one party can produce all goods with fewer resources than the other. Ricardo highlighted the importance of comparative advantage over absolute advantage. Comparative advantage is the ability of a country to produce a particular good at a lower opportunity cost than another country; and economies must specialise in the production of goods in which they have a comparative advantage if we are to raise world output. His theory was a game-changer for economists as, for hundreds of years previously, the predominant view of foreign trade was that of Mercantilism; the idea that the purpose of trade was to accumulate gold.
His theory of value was another important contribution to economics at the time and posits that “the value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour”.
One of his last known addresses was 56 Upper Brook Street in Westminster, UK. Unfortunately, this house was demolished after sustaining bomb damage during the war and is now the home of the US Embassy.
“Neither a state nor a bank ever have had unrestricted power of issuing paper money without abusing that power.”
– David Ricardo