David Ricardo: Contributions to the economy

In the world of economics and finance, nothing is written on rock, so every theory and thought that revolves around economics and trade is Observe from the perspective of scholars and professionals who have successfully tested theories, to the point of being true even centuries after their initials proposals.

Such is the case of David ricardo, a brilliant economist of the current of classical thought who has transcended thanks to his theories about the economy which we will know below, as a useful way to better understand some concepts financial

Why is the name David Ricardo important?

David Ricardo was the third of a large number of siblings, specifically 17. His family moved from the Netherlands to England before his birth and from an early age he undertook work on the London Stock Exchange with his father, at the age of only 14 years.

After marrying outside the Jewish faith and having specialized in securities trading, he was able to amass a considerable fortune in a relatively short time. He was a member of parliament until his death, but it is not really for this that he is recognized but for his work in one of the most important books on economics written in the 18th century and the object of study today in day Principles of political economy and taxation.

David Ricardo's contributions to the economy

Having had extensive experience and then having been trained and specialized in everything concerning values ​​and negotiation, this emblematic character contributed to the development of concepts such as macroeconomics and made valuable analysis of elements such as salary and its relationship with benefits, this led to the creation of the known law What law of increasing yield.

Another of his creations and theories was the quantity theory of money, serving as a reference for opposite poles of currents such as Marxism and the liberalism.

The exchange value of the goods

Regarding this, David Ricardo stated that the value of things was the amount of work that was necessary for the production of said merchandise. At this point he has similarity with other authors such as Adam smithThis is how he also stated that in societies with a less developed level, this value would be the time to produce the goods necessary for the workers and their families to survive.

Things change when it comes to developed populations or societies in which the market begins to play a fundamental role, in in which case this difference would be minimal and would be adjusted according to the number of people and the important thing would be that there would always be a Balance.

Differential income theory

From the point of view of history and at a time when the owners of the land did not work it directly, but rather rented it, David ricardo Observing this he put forward a theory with which he in turn introduced the law of diminishing returns.

With the increase of the population every day less fertile lands would be cultivated, therefore, the price of the food would increase so that nominal wages should also increase equitably at the cost of life.

Ricardian equivalence

This is another important David Ricardo theory that has transcended his time and has become fully valid even today. This world famous economic theory holds that when the state increases debt-financed expenditures to stimulate demand, demand does not actually change.

This is due to what is known as an increase in the public deficit, which in the future will lead to higher taxes, which in turn will make people save more and spend less and thus maintain stability at the level of consumption.

David Ricardo and world trade

David Ricardo for many years was a follower of Adam Smith, who was the inspiration for him to follow the path of economics, his popularity grew through writing different articles for the newspaper with his opinions about the economy where he achieved great popularity among the readers.

He was a practical thinker and his theories on international trade were based on statements that for logic were attractive, such as the fact that each country should produce and dedicate itself what is facilitated produce.

In this way, his influence through arguments was very important to abolish the grain law, at this time it was the tools who supported by the law that protected England from imports, it made them richer and gave them power over parliament and the lives of citizens, since they offered welfare in exchange for political control and parliamentary dominance.

Comparative advantage

It is a model developed by David Ricardo and defined as the ability of a country, company or any individual to produce goods using fewer resources than others. This foundation is basic for trade between countries, in this way countries produce those goods that make it easier for them to produce.

It is a way that improves the absolute advantage of Adam Smith and according to this theory this is how commercial ties between importing and exporting countries and that despite its simplicity it has become a pillar with regard to trade international.

Words of David Ricardo

“For general prosperity, the ease given to the circulation and exchange of all kinds of property can never be considered excessive, since it is by that means that capital of all kinds has the possibility of finding its way into the hands of those who will best employ it in increasing the product of the country."

This is especially important in regard to state policies to increase wealth, with the state often seeking to control not so much only the production of goods but also properties, you manufacture land or any other, hindering the necessary flow that capital must have to create prosperity.