David Ricardo and his Contribution to economic Literature

The topic we have chosen for today's discussion is from the History of Economic Thought series and that is David Ricardo and his Contribution to Economic Literature. David Ricardo can be called a true representative of the classical system. That is, the classical system whose founder is Adam Smith and the one who has done the work of extending it to a great extent is David Ricardo. David Ricardo, who was born in 1771 That is, you can say that when Smith published his book, The Wealth of the Nation, Ricardo was only 4 years old. Ricardo did not have a background like Adam Smith. Smith belonged to an aristocratic family. He got a very good education from the university. He taught at the university. His language was very flawless. He wrote very well. He proposed a lot of ideas that did not exist before that. They did not exist in crystal clear form. They had a cleanliness in them. And the major contribution of Smith was to address the value question. That was number one. And number two was to demolish the theory of mercantilism. That is, international trade is a zero-sum game. What does zero-sum game mean? That is, one country can benefit at the cost of another country. Smith demonstrated this through his theory of absolute cost advantage. In which he demonstrated that if two countries trade, both will benefit. It is not that it is a zero-sum game, but an international trade is a positive-sum game. Ricardo also promoted this theory by propounding the comparative cost advantage theory. And the value theory, the labor theory of value, which was propounded by Smith, was somewhat confused by Smith. Some questions were left unanswered. David Ricardo also gave the answer to that. David Ricardo's theory of value and theory of distribution, in which his theory of rent, theory of wages, and theory of profit are included. So, all these are the contributions of David Ricardo. And the work that Smith initiated, he left it to the last degree by David Ricardo. So, in this regard, he is a true representative of the classical system. It is not that in the classical system, there are only two economists, Ricardo and Smith. But Ricardo is a very big name. If there is another big name after Smith in that system, it is Ricardo. Now, as I said, Ricardo's language is not such a flowery language. Ricardo was not an academic economist. Because the family in which Ricardo was born, they used to trade in the stock exchange. Ricardo also adopted the same profession and he made a lot of money in it. In 1799, when Ricardo got the opportunity to study Smith's Well of the Nation, he got interested in economics. And he thought about those theories, modified those theories and polished those theories. We can't say that Ricardo's language is a flowery language. Some people may say that after reading Ricardo's language, there is an enquiry in it. It does not seem so. But because Smith's language is a very polished language. If you read the language of Well of the Nation, and read Ricardo's Principles of Political Economy and Taxation, there is a lot of difference in their languages. But Ricardo's content is not less in any way. So, Ricardo's interest is in 1799. In 1799, he got interested in economics. Before that, he was born in a Jewish family. His father and parents were Jews. Ricardo left his faith and became a Christian. Probably the reason was his marriage. He married a Christian and his parents were Jews. It was a marital issue because of which Ricardo renounced his Jewish faith. And he became a Christian. Because of this, his relationship with his parents became bad. But Ricardo ultimately adopted the same profession. That is, broker of stock exchange. And there he earned a lot of money. So much so that not only did he buy a very big real estate, but he also bought a seat in the parliament. Because at that time, the seats in the parliament were very expensive. A lot of money had to be invested. So, Ricardo represented the parliament as well. A big contribution of Ricardo comes to light in 1810. When he published a work about which it is said that even if Ricardo had not written Principles of Taxation, Principles of Political Economy and Taxation, Ricardo would have been known in the history of economic doctrine because of this work. This work comes to light in 1810. And its principal work is in 1817, Principles of Political Economy and Taxation. Now let's see what is the contribution of Ricardo. Now recall Smith. The value theory performed by Smith was that labor is a cause of value, that means the labor is a source of value, and also a measure of value. That is, the value of anything is because it has some labor in it. Labor has produced it. A certain amount of labor is exercised on that commodity. Labor is embodied in it. And the same thing is its exchange value. That is, if that thing is changed to something else, it will be traded, then its exchange rate will be determined by this labor embodiment. For example, if there is two hours of labor in commodity A and four hours of labor in commodity B, then the exchange rate of both will be two units of commodity A is equal to one unit of commodity B. This does not mean that it will be barter. If there is an exchange through the medium, i.e. money, then its result is B. The exchange rate will be determined by this. But when Smith propounds his value theory, then he says a few more things. That is, somewhere he has this confusion when he talks about the Walter Diamond Paradox. I am talking about Smith. That value is determined by its scarcity. That is, diamond is not very useful. Ornamental value is of some other value. But you cannot imagine life without water. But there is no value of water. Water is not scarce. While diamond is scarce. But there is a lot of value of diamond. Then when he talks about natural price and market price, then somewhere it is also that the market price will fluctuate around the natural price. And in the long run, there will be a tendency for both to converge. This means that somewhere there will be demand and supply in his mind. But he did not say these things explicitly. And the most problematic thing was that Smith was not able to successfully explain how the labor theory of value will reconcile that mode of production where labor is not the only factor of production, but capital and land are also included in it. Ricardo advanced this theory. This is a very big contribution of Ricardo. Ricardo agreed to Smith's view that labor is a cause of value and labor is a source of value. Ricardo had no disagreement on this that labor is not the source of value. And the exchange rate will also be determined by labor. But what is the reason when we look at a wage, that is, labor produced something, he got a wage, but he cannot buy as much labor power from that wage as the labor power he created. So here it seems that there is a difference between labor embodiment and labor command. Labor embodiment is much more and labor command is less, which means that labor is getting money. That is, labor made something, labor is embodied in it, labor got its money. So, theoretically, if labor is the source of value, then if he is buying something else, that is, he is buying labor power, which is embodied in some other product, then he is not buying as much labor power as he has created. Ricardo said that this problem is of distribution. So, in Ricardo's case, we take value theory and distribution theory together. Ricardo said, let's take these two together, so this becomes a complete theory. Ricardo said that the value of a commodity is determined by two things. One is labor power and the other is scarcity. In scarcity, he said that those things which are not reproducible items, for example, a rare painting, a rare music album, that is, it cannot be reproduced again, it is the same. These kinds of things, when there is a collection of such coins, then they have no value in any way, but these things, which are a very negligible part of a total transaction, which are traded in the economy, then it cannot be given precedence over any labor theory of value. There are some things like rare paintings, now there is a painting of Mona Lisa, it has no value, or there is a painting of Van Gogh, it has no value, the original painting, no matter how much you make a replica of it, but the original painting is not reproducible. Once it is made, it is not made. So, their things are determined separately, and the value of the rest of the things is determined by the labor theory, by the labor embodiment. Now, when you see that labor has created something, that is, labor created value, how? Labor produced something, Good A, in which there is some labor embodiment. Okay? And when labor got its money, then the thing he is buying, the good he is buying, he is getting as much as the value he has created. So, Ricardo said that this problem is not of value, this problem is of distribution. That is, the thing created by labor, the commodity, there both labor and capital are invested. But capital is past labor. You can call it indirect labor. You can still call it, that is, you can call it past labor, indirect labor, dead labor, call it anything, that is, in labor, in the commodity, the factors of production are invested, that is, labor is invested, which is current labor, and capital is invested, which is past labor. Or you can give a term to any of these. Because whenever value is created, then value is created because of labor, because a portion of it is appropriated by the person who has deployed capital. Where did capital come from? Because in the previous period, he appropriated that value, because he had capital. In the same way, you keep going back and forth, until you reach that point of production where capital was not there, but labor was the only factor of production. So, when this distribution problem started, a class was appropriating a portion of the value. That is, if this is the total output, and this is the capital of the capitalist, he takes this much. So, the value is being created completely because of both the factors, this is past labor, this is current labor. And this is being appropriated. The second thing is that each other's profit and each other's share can only increase at each other's expense. If wages increase, then the profit share will decrease. So, the problem is of distribution which David Ricardo highlighted. This was the point that Marx picked up for his theory of exploitation. Although Ricardo, despite the fact that he had identified this problem, that the problem is of distribution, but still, he was a votary of the subsistence wage rate, because that is why capital accumulation will occur and the economy will grow. He did not develop the theory of exploitation which Marx did. So, the basic idea on which Marx built his theory was the theory of value and the theory of distribution of Ricardo. That is, it is said that Marx is fortunate enough to have a master in Ricardo. That is, Marx is very fortunate that he got a master like Ricardo. Master does not mean that Ricardo taught Marx. But the things that Marx got, the basis he got, was the theory of Ricardo on which his theory of surplus value was based. So, if you put together Ricardo's value theory and distribution theory, then you will feel that this theory is complete in itself. There is also rent in theory and distribution. Rent is the portion that the landowner gets. And because I will make a separate video on rent, so I am not including rent in this. How rent gets determined and how different quality of land attracts different land. That is, there is a different quality of land in terms of fertility, so its rent is also different. So, for this video, the theory of value theory This is the work of Ricardo on the theory of principles of political economy and taxation. It is published in 1817. And this is the important work of Ricardo. And Ricardo's full life, I mean, Ricardo's death is in 1823. Ricardo relatively died young. Ricardo died at the age of 52 or 53, when Ricardo died. So, the work of Ricardo at the age of 52, because of which the theories are still there, especially comparative advantage. So, on this, the question will remain what are the sources of comparative advantage. But it is the comparative cost advantage that determines the trade and its gain between the two countries. So, Ricardo's two things, because it will be a long lecture, the theory of rent and Ricardo's theory of comparative advantage. We will do it in another video. That's all for today. Thank you.