Ricardo’s Theory of Distribution and Growth David Ricardo (1772-1823)


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Ricardo’s Theory of Distribution and Growth


David Ricardo (1772-1823)

  • “To determine the laws which regulate this distribution, is the principal problem in Political Economy.”



Ricardo’s Theory is Important for the Following Reasons:

  • Provides us with vision of the future

  • Explains why in Ricardo’s view investment opportunities decline

  • Explains in simple terms the reason for rent



Historical Backdrop: Corn Laws

  • Corn Laws

  • British Parliament was dominated by the landowning classes



Distribution and Production



Assumptions

  • Say's law--supply creates its own demand, and whatever is saved is invested (accumulated).

  • Labor theory of value, prices are proportional to the quantities of embodied labor.

  • Agriculture is labor intensive, manufacturing is capital intensive.







Rent

  • Return to an factor of production for which there are no substitutes or no “good” substitutes

  • Examples: land, a particular location, a living legend, etc.



Ricardian Rent

  • Ricardo defined rent as follows:

    • different between output on the most and least fertile land in cultivation
    • difference between costs of production on the most and least fertile lands in cultivation






















The End of Capitalism?



Implications?

  • Why was Ricardo’s position regarding the corn laws? Explain.

  • What policies did Ricardo recommend?

  • What happens to economic growth over time as the population increases? Why?

  • How does Ricardo’s theory reflect his class interests?





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