David Ricardo
Last updated: 2026-04-23
This article is part of the Basic Course on Libertarianism and the Austrian School of Economics-> Module 4: Main Schools of Economics
Life summary
Early life and formation
David Ricardo was born on 18 April 1772 in London, England. He was the third of 17 children of a Sephardic Jewish family of Portuguese origin (which had passed through Holland before arriving in England). His father, Abraham Ricardo, was a successful stockbroker.
From a very young age, at 14, he began working on the London Stock Exchange alongside his father. He received a practical education (he learned languages such as Dutch, French, and Spanish, as well as mathematics and accounting), but he had no formal university training in the humanities or philosophy—something uncommon for intellectuals of the period.
Financial success
Ricardo showed extraordinary talent for finance. He specialized in trading public securities (government bonds) and, thanks to his skill, accumulated an enormous fortune in a few years. By 1815 (around age 43), he was rich enough to retire from active business. When he died, he left an estate estimated between £675,000 and £775,000 (a gigantic sum for the time, equivalent to tens or hundreds of millions of dollars today).
Interest in economics
His training in economics was self-taught and relatively late. In 1799, at age 27, he read Adam Smith’s The Wealth of Nations, which awakened his passion for the subject. He began studying monetary questions and took an active part in the “bullion controversy” on inflation and the role of the Bank of England during the Napoleonic Wars.
His first publications were essays on money and prices. In 1810 he published The High Price of Bullion, in which he defended the quantity theory of money (the idea that inflation is due mainly to an excess emission of money).
Political career and final years
Ricardo was not only an economist: in 1819 he bought a seat in the British Parliament (common at the time) and served as a member of the House of Commons until his death. There he defended liberal ideas, such as free trade, parliamentary reform, and measures in favor of the working classes.
He died young, on 11 September 1823, at 51, at Gatcombe Park, from an ear infection that became complicated (today it would be easily cured with antibiotics). He left a widow and seven children (of eight he had).
His main ideas
In 1817 he published his most important work: On the Principles of Political Economy and Taxation. In it he systematized and deepened many ideas of classical economics.
His most famous contributions are:
- Theory of comparative advantage:
He explained why international trade benefits all countries, even if one is more efficient at everything. Each country should specialize in what it produces relatively more efficiently (comparatively) and trade. This remains one of the fundamental principles of free trade to this day.
For a detailed understanding of this theory, see this article -> Theory of comparative advantage
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Theory of differential rent: Land rent arises from the difference in fertility between lands. Better lands generate extra rent for their owners.
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Labor theory of value: The value of commodities depends mainly on the quantity of labor necessary to produce them (though he had difficulties with some cases, such as goods that take time to produce).
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Analysis of the distribution of income among wages, profits, and rents, and the tendency of profits to fall over time (due to diminishing returns in agriculture).
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Defense of free trade and opposition to the Corn Laws, which protected landowners and made food more expensive.
He is also known for Ricardian equivalence (on how people anticipate future taxes when the government borrows).
Critiques of his ideas
Many of his theses represent a step backward relative to earlier contributions such as those of Cantillon or Say, and opened problematic paths toward Marxism and interventionism.
1. Main critique: The labor theory of value (or cost of production)
Ricardo held that the exchange value of goods depends fundamentally on the quantity of labor embodied (though he admitted exceptions such as rare or monopolized goods). This was harshly criticized:
- By the Austrians (Menger, Böhm-Bawerk, Mises, Rothbard):
- Value is subjective, determined by the marginal valuations of individuals, not by objective labor costs.
- The water–diamond paradox (Smith–Ricardo) is resolved with marginal utility, not with hours of labor.
- Ricardo ignored that costs are past subjective valuations and that labor is neither homogeneous nor the only productive factor.
- This influenced Marx negatively, who radicalized the idea in his theory of surplus value and exploitation. The Austrians see here the “Ricardian vice”: simplistic abstract models that lead to erroneous political conclusions.
2. Theory of differential rent and the law of diminishing returns
Ricardo explained rent as a difference of productivity between lands (marginal land generates no rent). This implied a distributive conflict: landowners capture gains at the expense of capitalists and workers.
- Austrian and liberal critiques:
- It underestimates innovation, capital, and entrepreneurship.
- It ignores that “land” is not fixed; productivity improves with technology and capital.
- His pessimistic vision (stagnation, subsistence wages—“iron law of wages”) was not fulfilled thanks to capitalist progress.
- Rothbard and others stress that Ricardo exaggerated the role of “idle” landlords.
- Malthus (his friend) already debated with him about overproduction and general gluts, where Ricardo defended Say’s Law (everything is sold).
3. Comparative advantage in international trade
His England–Portugal example (wine and cloth) is celebrated and defended by Austrians as an argument against protectionism. However, it received critiques:
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Unrealistic assumptions:
- Labor as the only homogeneous factor, constant costs (not increasing), immobility of factors between countries but perfect mobility within them, absence of transport costs, etc.
- It does not explain goods with multiple factors nor modern dynamics (technology, capital).
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From Austrians (Haberler reformulated):
- The essence remains if it is based on subjective value and marginal utility, not on labor. Ricardo neither invented the idea nor gave it great importance; his formulation was limited.
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Modern critiques: It ignores social/environmental costs, strategic dependence, or effects on internal distribution.
Other historical critiques
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Excessive abstract-deductive method:
- (Schumpeter spoke of the “Ricardian vice”): Simplistic models with false assumptions that lead to dogmatic policies.
- He ignored history, sociology, and empirics.
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Contemporaries (Malthus, Say):
- Debates on machinery and unemployment (Ricardo acknowledged in later editions that it could harm workers temporarily).
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Marxists:
- They saw him as “bourgeois” but used him; they criticized his defense of industrial capitalism.
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Neoclassicals and others:
- Static assumptions, lack of dynamic general equilibrium.
Balance
- Ricardo was brilliant in defending free trade, the gold standard, and opposing the Corn Laws (agricultural protection).
- He advanced economics as a deductive science.
- But his objectivism in value and his focus on conflictual distribution (instead of harmony of interests via the market) distanced him from a deep praxeological understanding. As Rothbard notes in An Austrian Perspective on the History of Economic Thought, Ricardo reinforced classical errors that the Austrian marginalists corrected in the Revolution of 1871.
This article is part of the Basic Course on Libertarianism and the Austrian School of Economics-> Module 4: Main Schools of Economics
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Last updated: 2026-04-24
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