Great Thinkers in Economics Series Series Editor: A.P. Thirlwall is Professor of Applied Economics, University of Kent, UK. Great Thinkers in Economics is designed to illuminate the economics of some of the great historical and contemporary economists by exploring the interactions between their lives and work, and the events surrounding them. The books are brief and written in a style that makes them not only of interest to professional economists but also intelligible for students of economics and the interested lay person. Titles include: Esben Sloth Anderson JOSEPH A. SCHUMPETER William J. Barber GUNNAR MYRDAL Paul Davidson JOHN MAYNARD KEYNES Gordon Fletcher DENNIS ROBERTSON Peter D. Groenewegen ALFRED MARSHALL G.C. Harcourt and Prue Kerr JOAN ROBINSON Gavin Kennedy ADAM SMITH John E. King DAVID RICARDO John E. King NICHOLAS KALDOR Julio Lopez and Michaël Assous MICHAL KALECKI Paul Mosley and Barbara Ingham SIR ARTHUR LEWIS Alessandro Roncaglia PIERO SRAFFA James Ronald Stanfield and Jacqueline Bloom Stanfield JOHN KENNETH GALBRAITH Michael Szenberg and Lall Ramrattan FRANCO MODIGLIANI Forthcoming titles include: Nahid Aslanbeigui and Guy Oakes ARTHUR C.PIGOU Robert Dimand JAMES TOBIN Albert Jolink JAN TINBERGEN Warren Young and Esteban Perez ROY HARROD Great Thinkers in Economics Series Standing Order ISBN 978–1–403–98555–2 (Hardback) 978–1–403–98556–9 (Paperback) (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and one of the ISBNs quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England, UK David Ricardo John E. King © John E. King 2013 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN 978–0–230–28996–3 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 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Contents Preface and Acknowledgements vii 1 The Life and Times of David Ricardo 1 1.1 The Importance of Ricardo 1 1.2 Ricardo’s Life 2 1.3 Ricardo’s England: The Economy 12 1.4 Ricardo’s England: Society and Politics 16 2 Ricardo’s Vision 29 2.1 Philosophy, History, Society 29 2.2 Ricardo’s Method and Style 34 2.3 Ricardo’s Politics 42 2.4 Ricardo’s Works 49 Appendix: The Principles 54 3 Value and Distribution 56 3.1 Ricardo’s Problem 56 3.2 Profits and Rent 58 3.3 Wages 69 3.4 The Theory of Value 72 4 International Trade 81 4.1 The Theory of Comparative Advantage 82 4.2 Ricardo on the Corn Laws 88 4.3 Ricardo and His Critics 93 4.4 The Politics of Trade 100 4.5 Ricardo’s Trade Theory in the Twenty- first Century 104 5 Ricardo’s Macroeconomics 107 5.1 Growth and the Stationary State 108 5.2 ‘Say’s Law’ 112 5.3 Money and Banking 120 5.4 ‘On Machinery’ 126 6 Ricardo on Economic Policy 132 6.1 Fiscal Policy 133 6.2 Monetary Policy 142 6.3 Social Policy, Labour and the Poor 151 6.4 Ricardo, Laissez- faire and Classical Liberalism 157 v vi Contents 7 Editors and Critics 160 7.1 The First two Generations: 1823– 1870 161 7.2 Ricardo and the ‘Marginalist Revolution’: 1870– 1936 170 7.3 Ricardo and the ‘Keynesian Revolution’: 1936– 1975 177 7.4 Ricardo in the Age of Neoliberalism: After 1975 183 8 The Three Ricardos 186 8.1 The Marxian Ricardo 186 8.2 The Neoclassical Ricardo: From Marshall to Hollander 194 8.3 Piero Sraffa’s Ricardo 201 8.4 Ricardo’s Legacy 209 Notes 213 Bibliography 217 Name Index 248 Subject Index 255 Preface and Acknowledgements First of all I must thank the series editor, A.P. (Tony) Thirlwall, for commis- sioning this book and thereby allowing me to return to early nineteenth- century political economy after spending the last two decades working on the history of much more recent economic ideas. He also made many helpful suggestions and criticisms. I am grateful to Michael McLure and Greg Moore for bibliographic advice, and to Christian Gehrke, Heinz Kurz, Terry Peach and Matthew Smith for stimulating conversations and (in some cases) arguments over various aspects of Ricardo’s political economy. Thanks are due especially to Michael Schneider for reading the entire manuscript and making incisive comments. I have a larger debt to Michael, who introduced me to the history of economic thought many years ago and convinced me that Marx was not the only dead econo- mist who deserved to be taken seriously. I am also grateful to the Dead Economists’ Society, better known as the History of Economic Thought Society of Australia (HETSA), for 25 years of annual conferences, with hardly a single bad paper at any of them. My greatest thanks must go to Mike Howard, from whom I have learned so much over so many years. Mike read the entire manuscript and improved it greatly. But the usual disclaimer applies, of course. A note on sources: almost all references to Ricardo come from the eleven- volume Works and Correspondence, edited by Piero Sraffa (with the assistance of Maurice Dobb) and published by Cambridge University Press between 1951 and 1955 (volume XI was delayed until 1973). They are cited by volume: thus ‘I, p. 30’ refers to p. 30 of the Principles. The same method of citation has been used for Sraffa’s (copious) editorial notes, which are often (but not always) in lower- case Roman numerals: thus ‘I, p. xxx’ refers to p. xxx of his ‘Introduction’ to the Principles, but ‘IV, pp. 3– 8’ refers to his editorial notes on pp. 3– 8 of volume IV of the Works and Correspondence. It should always be clear from the context whether it is Ricardo or his editor who is being cited. A relatively small number of manuscripts and letters have come to light since the completion of the Cambridge University Press edition. In each case they are attributed to the editor; full citations are given in the References. JOHN E. KING vii This page intentionally left blank 1 The Life and Times of David Ricardo 1.1 The Importance of Ricardo My previous contribution to this series was devoted to Nicholas Kaldor ( 1908– 1986), a man with a very high opinion of David Ricardo as an economic theorist, even though he was never himself in any sense a Ricardian. Kaldor once described Ricardo’s Principles as being ‘generally regarded as the basis of modern economics’ (Kaldor 1978, p. 183). As he wrote in 1982, with reference to Keynes’s General Theory: ‘It will rank as one of the top 5 classics in the field – of comparable importance to Adam Smith’s Wealth of Nations, Ricardo’s Principles, Marx’s Das Kapital and Alfred Marshall’s Principles of Economics’ (Kaldor 1982, p. 259). Half a century earlier, Claud Guillebaud (1927, p. 16) went even further, describing Ricardo as ‘perhaps the greatest intellect which has turned to economic science’. If this is a contentious assessment, it is probably more generally accepted that ‘no figure in the history of economics has been more controversial than Ricardo’ (Whitaker 1989, p. 492).1 Ironically, one area of controversy concerning Ricardo is precisely the extent of his influence. According to the most authoritative recent history of classical political economy, by Dennis O’Brien, ‘the full Ricardian apparatus attracted hardly any disciples … By 1830– 1 Ricardian value theory had effectively disappeared … Only in the case of Ricardo’s treatment of comparative advantage do we really find an unbroken continuation, development, and refinement of his work’. And then he continues: But having said all this it is vital to be clear about one thing. Though the influence of Ricardo has been shown to have been extremely limited, it was, for the further development of Classical economics, 1 2 David Ricardo entirely necessary to discuss his system. For his tremendous intel- lectual vitality had burnt deep scars onto the Classical- economic consciousness.