DAVID RICARDO (1772-1823)

1. DAVID RICARDO (1772-1823)

2. A very controversial figure. Some regard him as possibly the greatest of all the British political economists. Others blame him for holding back the development of economic analysis for up to 80 years. • No general agreement exists on Ricardo’s place in the history of economic thought. The content of his work, and his legacy, continue to be debated in the scholarly journals. • Was a controversial figure in his own lifetime. Was despised, even hated, by some supporters of the landlord class and by sympathisers of the labouring class. But others regarded him as a genius. • However, generally accepted that his theoretical work was highly abstract and difficult to understand. Many even who disagree with his work regard him as possibly the first abstract ‘model-builder’ in the history of the subject. • It is sometimes forgotten that Ricardo was both a political economist and a politician. These lectures will consider his contribution to both areas, and the links between them.

3. The Economic, Social and Political Context for Ricardo’s Work • Ricardo’s writings cannot be appreciated fully in abstraction from the context in which they were written. This elementary point is often overlooked. He is sometimes interpreted as if he had been writing for publication in a 20th or 21st century economic journal. This has led to serious misunderstandings. Although Ricardo did adopt an abstract style of reasoning, he was very much concerned with contemporary economic problems. His was not an interest in theory purely for its own sake. • The British economy had continued its modest growth of around 2.5% since the time of Adam Smith. But the cumulative effects of this growth were now becoming more apparent. The nature of the economy was visibly changing. Some indicators: • Population growth: from c.7m in 1770 to 12.51m in 1801 to 14.21m in 1821. • A significant increase in the size of cities. For example: Liverpool: from 82,000 in 1801 to 138,000 in 1821 Manchester: from 75,000 (1801) to 135,000 (1821) London: 1,117,000 (1801) to 1,600,000 (1821).

4. An increase in the number of workers employed in a single factory. In the case of cotton-spinning, the number of workers employed in a single factory rose from 300 (1770s) to 727 (1801) to 1,500 (1816). • Increasing mechanisation: the power loom had been patented in 1785. By the early nineteenth century there was a general move to replace water power with steam power. But the construction of machines also required the development of the iron and mining industries. These sectors grew rapidly. So too did engineering. • An increase in the relative importance of manufacturing to agriculture. Some manufacturing industries were growing at a rate considerably above the national average: the cotton textile industry was growing at a rate of approximately 7% p.a.. This resulted in a (small) relative decline in the contribution of agriculture to national income. But in absolute terms the agricultural sector continued to grow. This is not surprising: much of the raw material for industry came from agriculture, and an increasing output of food was required to feed the growing population. • At the same time, this was a period of major economic, social and political problems: • Britain was at war with France from 1773 until 1815 when the Emperor Napoleon was defeated at the Battle of Waterloo. One consequence of the war was inflation, which was to reach the level of about 20%.

5. Before 1797, banks were required to convert paper currency for gold at a fixed rate on demand. But in 1797 there was a run on the banks as rumours spread of a French invasion. The government responded by suspending convertibility, and paper notes became the sole currency. It was the over-issue of bank notes that was the principal cause of the inflation. • The National Debt. The war was extremely costly. Taxes were increased in an attempt to meet the cost, and new taxes were introduced (including income tax). But these measures were not sufficient. The government was forced to borrow heavily by issuing bonds, and the National Debt rose significantly. • Foreign Trade. Trade was badly disrupted. Napoleon had blockaded European ports against the entry of British shipping. Merchants were forced to find more distant markets. • Agriculture. Opportunities for importing foreign corn (the principal subsistence commodity) were greatly reduced during the war. The increasing demand for food therefore led to an increase in domestic cultivation. This was accompanied by an increasing price of corn. As the war reached its close, landlords and farmers became fearful of their future. They worried that if free trade in corn was allowed, they would lose at least part of their market to cheaper, foreign corn.

6. The agriculturalists therefore campaigned for a new Corn Law that would prohibit the free importation of foreign corn until the domestic price reached a specified level acceptable to them. Owing to the dominance of the agricultural influence in parliament (see below) they were successful in their endeavour and the new Corn Law was enacted in 1815. This measure was opposed both by labourers, who had no interest in high food prices, and by capitalists, who feared that high food prices could result in higher wages and lower profits. • Unemployment. At the height of the war some 200,00 men had been taken off the labour market and placed under arms. Following demobilisation in 1815 there was a dramatic surge in the level of unemployment. The problem was compounded by the dislocation in trade throughout Europe. Domestic unemployment was estimated at the time as approaching 30% of the labouring population. This in turn led to widespread demonstrations and riots, and to incidents of machine-breaking (since workers believed that the increasing trend to mechanisation was partly to blame for their miserable situation). In this context of social unrest, the rich became increasingly fearful of their own position. • The Political situation. The UK likes to boast of its long ‘democratic’ tradition. It is true (a) that an absolute monarchy had been abolished as a result of the civil war in the 17th century; (b) that policy was made by a parliament that included elected representatives.

7. However, what was ‘represented’ in parliament was not so much people as property and, even more specifically, landed property. As for elections, many parliamentary constituencies were under the direct control of landlords –the voters were his economic dependents- and he could either bribe or bully them to support his preferred candidate (there was no secret ballot at this time, so the landlord would know if his wishes had been denied). Even in those towns where landlords had less direct control, elections were notoriously corrupt, and vote-buying was commonplace. In fact, however, very few urban centres did have representation in parliament: Manchester, Birmingham, Sheffield and Leeds had no parliamentary representation at all! Among the common people, and many in the middle classes (including capitalists) there was considerable dissatisfaction with this political situation. The government response was harsh repression of political dissidents: demonstrations could be put down by the sword, and those convicted of political ‘crimes’ could be imprisoned, whipped, sent for hard labour in the colonies, or publicly executed, sometimes in the most brutal fashion. This was the age of David Ricardo. Let us now consider the man himself.

8. DAVID RICARDO: BIOGRAPHICAL SKETCH • Born 18 April 1772 in London. The Ricardo family belonged to the population of Spanish and Portuguese Jews who had been forced by the Inquisition (religious persecution) to emigrate. They moved first to Amsterdam, where David’s father, Abraham Ricardo, had been born. Abraham had followed his own father’s occupation, working on the Amsterdam Exchange. In around 1760 Abraham moved to London and married. He pursued his career on the London Exchange. He was a devout Jew and prominent member of the Jewish community in London. • David was educated to follow his father’s profession. He attended school until the age of 14, after which he worked for his father. He did not receive a University education. • In around 1792 he became romantically involved with the beautiful daughter of a rich surgeon. But she was of a different religion –she was a Quaker- and they were forced to conduct their romance in secret. They married in December 1793. David was disowned by his parents, sacked from the family business, and disinherited. He never spoke to his mother again. He also broke with the Jewish religion. There is some evidence to suggest that he became an agnostic.

9. He borrowed money from friends to establish his own business on the London stock exchange. He was hugely successful. He soon amassed a sizeable fortune, allowing him in 1815 to begin a gradual retirement from business. Apart from financial investments, he also invested heavily in land, purchasing several country estates for himself and his family (in addition to his luxurious home in London). The total value of his wealth at death is estimated at £675,000 to £775,000 in 1823 prices, amounting to several hundred million pounds in today’s money. Some said that he was the richest self-made man of his time. His own country estate was Gatcombe Park, where he stayed for the summer. It is now occupied by Princess Ann, daughter of the British monarch. Below is a painting of the grounds:

10. Ricardo became a member of Parliament on 26 February 1819 as the independent member for a ‘rotten’ borough (or constituency) in Ireland. In effect, Ricardo purchased the seat by giving a large loan to the landowner who controlled the votes. He was a very active politician. His principal contributions were in the area of Political Economy, but he also argued against slavery and in favour of religious tolerance, freedom of speech and the right to peaceful protest. He was in favour of political reform. • The Ricardos had eight children between 1795 and 1810. Their family life appears to have been very happy. Ricardo was a popular man with many close friends. .He and his wife would entertain lavishly at Gatcombe Park, hosting dinner parties that could last until 4 o’clock in the morning. He was described by one of his friends as “altogether one of the most agreeable persons, as well as the best informed and most clever, that I ever knew”. • His unexpected death at the age of 51, it is said from the effects of a burst abscess on the brain, came as a tremendous shock, not only to his family and friends. All the leading newspapers of the time carried his obituary. Even the newspapers that represented viewpoints which Ricardo had attacked vigorously were generous in their praise of his personal qualities and ability. He had come to be seen as a true ‘Statesman’ and seeker of truth, even by those who regarded his views as fundamentally mistaken.

11. Ricardo’s Political Economy: An Overview • Ricardo’s involvement with Political Economy could almost be described as an accident. Like many rich people of his time, he and his wife frequented the ancient spa town of Bath where they would ‘take the water’ and mingle with other rich and famous people. David Ricardo was not in fact greatly interested in this type of social activity. On one such visit in 1799, to relieve his boredom, he discovered a copy of Adam Smith’s Wealth of Nations in a travelling library. That was the spark that ignited his interest. However, for several years he was too preoccupied with his financial career to regard political economy as anything more than “an agreeable subject for half an hour’s chat”. The turning point came in 1809. • As mentioned above, the free convertibility of paper money into gold had been suspended as a wartime expedient in 1797, following which prices had risen. But why? The debate over this question came to be known as the ‘Bullion Controversy’, to which Ricardo initially contributed letters and then pamphlets. These were the publications that first brought him to the attention of the public. • Ricardo’s next and more important publication, again a pamphlet, contained a theory-based argument against the introduction of the new Corn Law. His conclusion, that “the interest of the landlord is always opposed to the interest of every other class in the community” did little to endear him to the major landowners. Ironically, of course, he was by this time a major landowner himself!

12. It was Ricardo’s friend James Mill, father of the great philosopher and political economist John Stuart Mill, who persuaded Ricardo to develop his ideas in the form of a major treatise. The result was Ricardo’s Principles of Political Economy and Taxation, first published in 1817 and twice revised in 1819 and 1821. This is the work for which Ricardo is best remembered. • The “principal problem in political economy” is defined in the Principles as the determination of the “laws” that regulate “the natural course of rent, profit, and wages” over time. The book abounded in novelties, including a new theory of profits, a new theory of value, and a theory of international comparative advantage in trade. • The style of the Principles is dry and quasi-mathematical. However, the arguments that Ricardo developed with his theory were anything but dry and irrelevant. He argued against trade restrictions generally and the Corn Law in particular; he argued for the gradual repeal of the Poor Laws; he campaigned for the speedy repayment of the National Debt; and, generally, he supported minimal taxation and a balanced budget. He was, in total, a zealous advocate of a fee-market capitalist system with minimal government interference –far more zealous and uncompromising than Adam Smith- who believed that the UK would be “the happiest country in the world, if we got rid of two great evils –the national debt and the corn laws”. If Adam Smith has often been regarded, incorrectly, as the unbending apostle of laisser-faire economics, it is Ricardo who is more deserving of the title.