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1、Chapter 6 THE CLASSICAL SCHOOL THE CLASSICAL SCHOOL DAVID RICARDODAVID RICARDO IntroductionIntroduction Although Smith was the founder of the classical school and set its dominant tone David Ricardo 1772 1823 a contemporary of Malthus was the leading figure in further developing the ideas of the sch
2、ool we will develop his theory of land rent and related theory of diminishing returns Ricardo the third of seventeen children was born of Jewish immigrants who had migrated to England from Holland Ricardo s principles for making money on the stock exchange may be as interesting to many as his abstra
3、ct economic theorizing 6 1 BIOGRAPHICAL DETAILS 6 2 THE CURRENCY QUESTION Guided by win win concept In 1797 in the midst of more than two decades of warfare between England and France a panic and a run on gold dangerously depleted the reserves in the Bank of England The problem according to Ricardo
4、was not the high price of gold but rather the low value of the pound sterling The remedy that Ricardo called for was a return to the gold standard Ricardo s law of diminishing returns and theory of rent developed in response to the debate over the corn laws Chapter 6 Rent is that portion of the prod
5、uce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil According to Ricardo rent arises at both the extensive and intensive margins of cultivation 6 3 THE THEORY OF DIMINISHING RETURNS AND RENT Exchange Value Ricardo was concerned with relati
6、ve values not with absolute value he wanted to discover the basis for the ratio of exchange between commodities In his Principles of Political Economy and Taxation 1817 Ricardo wrote that for a commodity to have exchange value it must have use value The exchange value of a commodity depends on the l
7、abor time necessary to produce it 6 4 THE THEORY OF EXCHANGE VALUE AND RELATIVE PRICES Ricardo recognized all of these potential complications and tried to address each of them 1 Differing capital labor ratios 2 Differences in labor quality 3 Wages profits and rents 6 5 THE DISTRIBUTION OF INCOME Ri
8、cardo s reference is to factor shares or what today we call the functional distribution of income Wages Labor said Ricardo like all other things that are bought and sold has its natural price and its market price Ricardo s idea that in the long run the worker gets only a minimum wage came to be know
9、n as the iron law of wages Profits Ricardo felt that the rates of profit in different fields of enterprise within a country tend to equalize Price movements influence rates of profit that in turn direct the flow of capital In fact suggested Ricardo the rate of profit on marginal land where rent is z
10、ero governs the rate of profit in the whole economy Ricardo emphasized that profits and wages vary inversely one increases at the expense of the other Rents Ricardo saw a conflict between the interests of workers and capitalists An even more basic conflict exists he said between landlords and the re
11、st of society Contemporary Representation 6 6 POLICY IMPLICATIONS Ricardo drew several important conclusions from his analysis of the components of the national income First he felt that wages should not be regulated nor should relief be given to the indigent Second Ricardo concluded as had the phys
12、iocrats that a tax on rent would affect only rent Finally disagreeing with Malthus Ricardo strongly opposed the corn laws The Theory of Comparative Costs Ricardo made a brilliant and lasting contribution to economic thought by showing that even if one country is more efficient than another in produc
13、ing all commodities trade between the two nevertheless can be of mutual benefit His theory of comparative costs is now known as the law of comparative advantage 6 7 RICARDO ON UNEMPLOYMENT Ricardo agreed that a temporary glut could occur but argued that full production and employment normally would
14、prevail He invoked what today is known as Say s law of markets to defend his position 6 8 ASSESSMENT Ricardo made several lasting contributions to economic analysis the use of abstract reasoning his theory of comparative advantage his employment of marginal analysis his presentation of the law of di
15、minishing returns in agriculture and his widening of the scope of economic analysis to include the distribution of income 6 8 ASSESSMENT On the other hand his analysis was weak or inaccurate in several respects overemphasize the law of diminishing returns in agriculture may be faulted for unrealistically assuming that land has a single use Ricardo s thinking with respect to the impact of additions of new machinery on employment was also misleading Thank You For Listening
