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David Ricardo: Law of Diminishing Returns

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David Ricardo: Law of Diminishing Returns

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  • November 30, 2008
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David Ricardo, a 17 century English political economist, is considered an extremelyinfluential classical economist along with Adam Smith and Thomas Malthus. Ricardo was bornon the 27th April 1772 and helped develop key economic theories until his death on the 11thSeptember 1823 1. Ricardo grew up in a dominate English family where his father was also aneconomist, Ricardo credits his father and the reading of Adam Smith's book The Wealth ofNations for his interest of the social science, economics2. Ricardo did not reach immediate fame,in fact it quite the opposite. It was not until age 37 when Ricardo first published his views oneconomics, after he reached the milestone of publishing his first article he continued to work anddeveloped his theories, it was ten years later, at the age 47 when most say Ricardo reached hispeak of fame. While developing economic theories Ricardo worked on the Stock Exchange inLondon, this increased his wealth, by the time he was 42 he was completely retired from theexchange and his sole focus was surrounding economic 3. In the remainder of this essay I willexamen some of Ricardo's economic theories with a focus on the law of diminishing returns.

David Ricardo is responsible for the creation as well as the development of a number ofkey economic theories which allowed past and current economist to better understand todaysever changing economy. The three accomplishments that Ricardo has received most credit for arethe labor theory of value, the law of diminishing return as well as the Barro Ricardo equivalence4. The labor theory of values are a set of theories that suggests that the value of any good orservice is equal to the amount of labor that was put in to the good or service either directly orindirectly to produce it. The labor theories of value were furthered developed by Ricardo as wellas fellow classical economists including Adam Smith, the Labor theory of value is not commonlyused in current times and instead it has been...