19 November 2012
The author surveys three influential economists of the Classical era—Ricardo, Marx, and John Stuart Mill—and introduces the reader to their Macroeconomic perspectives based on some of their more prominent Macroeconomic theories.
David Ricardo was a Classical Economist who lived from 1772 to 1823. In his professional life he wore many hats: he was a businessman, a financer, a speculator, and a member of Parliament. But what he is most remembered for is the role that he played in the evolution of economic theory, alongside of such other greats as John Stuart Mill and Thomas Malthus, among others. In examining the economic theories which he espoused it is interesting to consider the part that his above-mentioned professions played in influencing his positions. Through his experience as a businessman was undoubtedly able to gain insights into the workings of industry; through his experiences as a financer and a speculator he gleaned invaluable insights into the workings of the financial system; and through his experiences as a member of Parliament he no doubt acquired insights into the workings of government and politics that does much to add credibility to many of his economic expostulations. Although he worked diligently in the fields of both Macro- and Micro-economics we will be focusing here primarily on some of his more distinguishing Macroeconomic contributions. The principals within this field of economics which we will be focusing on in particular are: The Law of Comparative Advantage, Comparative Statics, International Money Movement, and Deficit Spending.
The principal which is arguably the most important and enduring contribution that David Ricardo ever made to the field of Economics is The Law of Comparative Advantage, also known as The Law of Comparative Cost. This was a principal that was originally developed by Adam Smith in his renowned work entitled “An Inquiry into the Nature and Causes of the Wealth of Nations.” However, although Adam Smith first developed this principal it was David Ricardo who refined it and thus he is deserving of credit for his part in the formation of this economic principal.
The Law of Comparative Advantage was first mentioned by Ricardo in his work entitled “On the Principals of Political Economy and Taxation.” It is based in “specialization.” and is a “law” which we see operating all around us in present times. Basically this law takes one of Adam Smith’s observations--that specialized units within a manufacturing process leads to increased efficiency—and applies it on an international scale. Adam Smith’s observation was that when manufacturing a particular type of item, if each worker present were to work on an item from start to finish they would be inefficient and slow and would not be able to produce nearly as much of the items as would a factory of workers who were separated into specialized units, each unit having the responsibility of completing one of the processes necessary for manufacturing the particular item. Ricardo took this one step further and applied it on a macro level. He noted that different countries, for various reasons, have specific goods that they are particularly adept at producing. He further noted that if countries had to provide for all of their needs internally then they would be unable to focus their attention on the things that they did particularly well. On the other hand, if each country were able to focus on producing the things that they did well then they could produce exponentially more of them and could trade amongst each other for the things that they needed but did not produce internally. Also, he took the Opportunity Cost into account and noted that even if one country did everything better than another it would still be practical for the lesser country...