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"Rents, Profits, Wages": The Bicentenary of Ricardo's Principles and the making of economics

This month marks the bicentenary of David Ricardo’s Principles of Political Economy and Taxation, a founding text of modern economics, first published in London on 17 April, 1817. The veneration of ‘classic texts’ is always a perilous game and, curiously enough, at this stage commemorations for Ricardo's famous book appear scant compared with the conferences and celebrations that attended the bicentennials of the other 'founding texts' of British economics: Adam Smith's Wealth of Nations (1776) and Thomas Robert Malthus' Essay on the Principles of Population (1798) – although suggestions for a 'party' have been raised in the House of Lords.  Nonetheless, remembering Ricardo’s Principles has a good deal to teach us not only about the development of economic theory, but about how we characterise the industrial revolution and, more fundamentally, have come to speak of that now-indefatigable object, ‘the economy’.

Ricardo was born in London in 1772 into a large and prosperous Jewish family. At the age of fourteen he began working for his father as a clerk and messenger on the London Stock Exchange where he continued alone after a break with his family following marriage outside the faith, then aged 21. He amassed considerable wealth and respect in the City, operating also as a government loans contractor. After the Napoleonic War he began shifting his fortune into landed property and in 1819, following retirement from the Stock Exchange, entered Parliament as an M.P. for the rotten borough of Portarlington. David Ricardo died in 1823.

He first became interested in political economy after reading Adam Smith’s Wealth of Nations in 1799 and began publishing himself in 1809, initially on the price of gold and currency issues. A more notable contribution followed in his 1815 pamphlet arguing for a free trade in grain. His friend James Mill encouraged him to expand the pamphlet into a book-length treatise, which Ricardo finished two years later. Principles went to two further, enlarged editions in 1819 and 1821, the most significant addition being a chapter ‘On Machinery’ in the third edition, in which he argued labour-saving innovations could harm the interests of wage-earners (a threat that again preoccupies us today).

The book was notable for its brevity and theoretical, ‘deductive method’, contrasting greatly with Smith’s broad sociological-historical analysis (only aspects of which Ricardo saw himself refining), and to the prophetic appeal of Marx’s Capital or philosophical breadth of J.S. Mill’s Principles, both of which were deeply indebted to Ricardo’s framework. Rather, he stuck tightly to what he saw as the ‘principle problem in Political Economy’, which was to ‘determine the laws’ which regulate ‘the natural course of rent, profit and wages’. Postulating society as a zero-sum game between landlords, capitalists and wage-earners, Ricardo deduced that if wages rose too far above subsistence levels it would be at the expense of employers' profits, which would impair accumulation, investment and national growth. Many have subsequently thought the book one of great pessimism, as has been the fate of his friend and interlocutor Malthus. But Ricardo is often offering caution as to what might happen under errant legislation – like Corn Laws – and carries a quiet optimism that is tied to international free trade, including the incremental (if limited) improvement in the condition of the working classes. The book is now best remembered for its labour theory of value and theories of diminishing returns and comparative advantage.

The immediate reaction to Principles was both encouragement it might provide answers to challenges facing post-war Britain, but also criticism for its methodological approach and doctrines. At any rate, the growing status of political economy in the nineteenth-century owed less to theorists than middle class enthusiasm for free trade and individualism, its marriage with Providentialism, and its critique by Ricardian socialists  (who reformatted political economy for working-class ends) as well as the Romantics and Lake Poets. Within a generation most of Ricardo’s arguments had been modified or discarded however his general framework would remain influential late into the century. The enduring significance of Ricardo and his Principles, then, has been as much cultural as doctrinal.

As historian Donald Winch has suggested, after his death, and quite removed from his intentions, Ricardo became emblematic of the ‘industrial revolution’ (a phrase he would not have known) in a number of ways. First Marx, as an illustration of his own theories of historical processes, drew a sharp dichotomy between Ricardo and Malthus (which had never really existed), the former caricatured for his 'ruthless objectivity' that was the creed of progressive, bourgeois political economy, and Malthus as a backward defender of landed aristocracy. A little later, historian Arnold Toynbee went further, vilifying Ricardo as the great culprit of nineteenth-century industrialising Britain, a century Toynbee described as a 'bitter dispute between economists and human beings'. Reviving the arguments of the Romantics, Toynbee redressed Ricardo as a purveyor of cold, mathematical doctrines that had underpinned the ideologies of both free market capitalism and its most extreme critics: Marx and Henry George. Had Ricardian political economy not triumphed, Toynbee mused, ‘endless misunderstanding and hatred would have been avoided’. This polycephalic reading of Ricardo didn't last, but the tragedy of Ricardian political economy as the intellectual justification that consigned working people to the humdrum of industrial, mechanical life did live on in the twentieth-century in Richard Tawney, the Hammonds and E.P. Thompson.

But Ricardo is also responsible for his own enduring embellishments, too. By claiming his Principles to be a direct offspring of Smith's enterprise (which Smith had explicitly stated as pertaining to the wide-ranging but now lost 'science of the legislator'), Ricardo refurbished Wealth of Nations as the founding text of classical political economy and hence, modern economics. This has been to convert Smith's tome into a much narrower work, where subsequent generations of economists have found it sufficient to read (if that) only the first two of Smith’s five-book work – the two books that concerned Ricardo. And here Ricardo has distracted attention from perhaps his most enduring contribution. For by confining his analysis to the 'laws' of 'rents, profits and wages' distributed between a society composed purely of landlords, capitalists and wage-earners, Ricardo carved out a profound intellectual niche that would open the possibility of conceiving a new concept that has since become indispensable: 'the economy'.

 

Ben Huf is a PhD Candidate in the School of History.

Updated: 3 April 2017/ Responsible Officer:  Head of School / Page Contact:  Web Publisher