Ricardian economics

Ricardian economics are the economic theories of David Ricardo, an English political economist born in 1772 who made a fortune as a and loan broker. At the age of 27, he read An Inquiry into the Nature and Causes of Wealth of Nations by Adam Smith and was energized by the theories of economics.

His main economic ideas are contained in On the Principles of Political Economy and Taxation (1817). This set out a series of theories which would later become theoretical underpinnings of both Marx's Das Kapital and Marshallian economics, including the theory of economic rent, the labour theory of value and above all the theory of comparative advantage.

Ricardo wrote his first economic article ten years after reading Adam Smith and ultimately, the "bullion controversy" gave him fame in the economic community for his theory on inflation in 19th-century England. This theory became known as monetarism, the theory that excess currency leads to inflation. He was also a factor in creating classical economics, which meant he fought for free trade and free competition without government interference by enforcing laws or restrictions.

Another idea Ricardo is known for in his Essay on the Influence of a Low Price of Corn on the Profits of Stock is the Law of Diminishing Returns (Ricardo, Economic Essays, Henderson 826). The law of diminishing returns states that if you add more units to one of the factors of production and keep the rest constant, the quantity or output created by the extra units will eventually get smaller to a point where overall output will begin to fall ("diminishing returns").

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