Where is Ricardo Castellano's father

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Editor's note: This article appeared in 2007 on philosophieren.de, a now discontinued page with introductory texts on the history of philosophy and a dictionary of philosophers.

David Ricardo was born on April 19, 1772 in London to a Jewish merchant family. His father was a banker and was considered one of the richest men in Europe. The Ricardo family was originally Portuguese - the Jews were expelled from the Iberian Peninsula around 1490. Ricardo received a commercial training and started working as a stockbroker at the age of 14. Over time, the contrast between the conservative-minded father and the liberal and progressive son grew. The final separation of father and son took place in 1793, when the son converted to Christianity and married an Englishwoman of Christian faith. His father disinherits him and Ricardo is penniless at the age of 21. However, some friends give him loans. With these, Ricardo acquired a large fortune within a few years through skillful stock exchange operations (it is assumed that he was richer than his father at the age of 25), which allowed him to retire from business life at an early stage and to turn to science, initially the natural sciences (Mathematics, physics, mineralogy) and finally after 1799 with Smith 'main work Wealth of Nations had become known to the questions of economic theory. For the next 10 years, Ricardo only read and made critical notes. It wasn't until 1809 that he went public with a sensational writing: The high price of bullion, a proof of the depreciation of bank notes. Ricardo advocates a theory of money that would be called monetarist today: more banknotes lead to higher prices; the volume of economic activity is given.

In 1809 Ricardo was elected member of parliament. He has a strong influence in parliament on economic issues, such as customs policy. In this way he prepared the ground for the abolition of grain tariffs in 1846.

Another basic script followed in 1815: An Essay on the Influence of a Low Price of Corn on the Profits of Stock, in which he explains his grain model of distribution theory. Two years later, Ricardo finally published his main work: On the Principles of Political Economy and Taxation. This work makes Ricardo a co-founder of classical economics. In addition to value and price theory, questions of distribution and foreign trade are presented in a clear manner. The Principles are from a review of the Wealth of Nations originated. He hadn't dared himself to write a book that had his own theory as its content. James Mill, John Stuart Mill's father, encouraged him to do so by asking him questions about economic issues and revising the language of the answers. From this are the 31 chapters of the Principles emerged, so that it was not conceived as a closed theory, but rather as a collection of essays.

Without going into the other aspects of the further development of Smith’s ideas in more detail, I would like to put Ricardo's foreign trade theory at the center of my brief analysis. The key points of the other aspects should nevertheless be briefly mentioned: 1. The theory of differential rent (Ricardian rent theory), that is, the view that rent "is always the difference in income that results from the use of two equal amounts of capital and labor" (1) and that it depends on the “difference between that achieved through the use of the different parts of the capital [on equal or new land]” (2). 2. The grain theory of profit, that is, the assumed connection between profits and wages, which De Quincey - in contrast to the "old outdated teaching" Adam Smith '- describes as follows: "[...] he [Ricardo, JB] was the one first made it possible to derive wages from pensions - and therefore profits from wages [...], in short, could be said about profits - they are the remnants of wages ”(3). 3. The labor theory of value, which was directed against Smith’s wage theory of value: While Smith had asserted that the price of a commodity was essentially determined by the wages employed, with Ricardo the work required determines the price, regardless of its remuneration. De Quincey sums up the difference: “But, on the contrary, don't wages […] determine the price? No, that's the old outdated teaching. For the new economy has shown that all prices are determined by the proportional amount of producing labor, and only by this […] ”(4). However, this approach is modified “through the use of machines and other stationary and permanent capital” (5). Marx later tied in with Ricardo's theory of work. 4. the theory of technological unemployment, which states that technical progress makes workers redundant and thus unemployed. The main reason for this process at Ricardo is the fact that the machines replace direct labor. The machines must also be produced and require indirect work, but the release of direct work is usually greater than the increased use of indirect work. Employment is therefore falling. This shows a particularly deep gap to Smith, because the new technology is chosen on the basis of individual economic rationality and not on the basis of social or macroeconomic rationality. This contradicts the liberal theory of Smith ‘, in which the market - as the" invisible hand "- coordinates individual rational actions in such a way that macroeconomic rationality also comes about.

Ricardo's foreign trade theory offers a “convincing theoretical justification for the advantages of (international) trade” (6). The decisive factor here is that Ricardo considers trade to be sensible not only when one country can produce a good absolutely cheaper than another country, which in turn produces another good absolutely cheaper, but also when one country can produce both goods more cheaply But cost differences are unequal, because then it is worthwhile for the country to import the good for which the cost difference is greater and at the same time to concentrate on the production and export of the good where the cost difference is smaller. If - according to Ricardo - 400 working hours are spent in Portugal for a certain amount of cloth and 100 for a certain amount of wine and in England only 180 or 90 hours, then England is cheaper for both goods, but should specialize in cloth production, because here the margin is greater than with wine, which the Portuguese should make their main export good.

This creates a relative cost advantage which, in the theory of comparative costs, is decisive for a country's export orientation. Together with John Stuart Mill's theory of the formation of the terms of trade in free trade equilibrium, Ricardo's theory of comparative costs is the basis of trade theory and the main argument for free world trade to this day. The subject of research during the 20th century was v. a. the question of what are the causes for the occurrence of absolute and comparative cost advantages. This question was initially answered by the Heckscher-Ohlin theorem, which explains the specialization of the country in a main export good with the occurrence of the essential production factor in the country, whereby world trade leads to the equalization of the factor prices. If the Heckscher-Ohlin theorem describes the trade determinants of a developing country, trade within the industrialized nations demands other explanations for trade flows such as “product differentiation, economies of scale and technical progress” (7).

Ricardo's foreign trade theory assumes an exhausted production potential, national flexibility of production factors and at the same time international immobility of capital and labor. This then results in a certain distribution of the amount of gold among the trading countries. Countries with low absolute prices realize export surpluses that are paid for in gold. Countries with an export surplus receive gold, and conversely, gold flows out of deficit countries. In the surplus countries, prices rise - this is at least assumed by Ricardo's monetarist approach in monetary theory -, export products become more expensive, the export volume declines, imports rise, and the effects are reversed in the deficit countries. These processes last until the foreign trade balances are balanced, whereby this equilibrium constellation is automatically established sooner or later with free foreign trade. The theory of the adjustment of money and prices in foreign trade is based on the assumption that the volume of employment is given - as a rule, full employment is assumed. Imbalances are therefore eliminated through price adjustments, not through surplus / shortage strategies, realized through production adjustments.

Remarks:

1. Ricardo (1972): Principles of Political Economy and Taxation. Frankfurt a.M., p. 64 ff.
2. Ricardo (1972): p. 75.
3. De Quincey (1844): The Logic of Political Economy. Edinburgh / London, pp. 203 f.
4. De Quincey (1844): p. 204 f.
5. Ricardo (1972): p. 48.
6. Kruber (2002): Theory history of the market economy. Münster, p. 19.
7. Neumann (1994): Neoclassic. In: Issing, O. (Ed.): History of the national economy. 3rd edition, Munich, p. 263.

(Josef Bordat)