I have listened carefully to the criticisms, found them wanting and given my reasons for standing firm. This will become clear not only in Section II which includes formal replies to critics of my Ricardo but throughout, since many of the papers entail responses. Nor can one be absolutely sure that there will be no converts; there is some evidence of weakening even on the part of my severest critics see Chapter A particularly serious matter is raised by Professor Bronfenbrenner.
If my position is correct, as he believes it is, 'how How could so many great men in so many countries have so badly confused first approximation and "pedagogic clarities" with wrong-headedness, one-sidedness, narrow-mindedness, and sheer stupidity?
I shall try to give a partial answer to that question presently, pointing out now that, pace Blaug's rhetorical assertion that, in my view, 'absolutely everybody else has more or less misinterpreted Ricardo', I have in fact done my best to give credit where credit is due for all or part of the so-called New View. I also find my position confirmed and reinforced by my researches for The Economics of Thomas Robert Malthus in press.
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As George Stigler put it so disarmingly in his memoirs: 'One surprising feature taught by intellectual history is the persistence of uncertainty over what a person really meant. One might think that intellectual competence and goodwill are all that are required to understand what a scholar intends to say, but the study of any important scholar of the past will show that belief to be most naive' , Here Stigler apparently takes for granted that our concern should be with 'what a scholar intends to say' though elsewhere he relegates this to a secondary category of 'personal' rather than 'scientific exegesis' below, Chapter I wholeheartedly share this objective, and would regret the infiltration of 'literary theory' of the deconstructionist variety into our discipline.
It is the rejection of 'authorial intent' as a valid concern which I cannot appreciate, though fortunately self-declared literary theorists do not always practise what they preach. I certainly do not mean by all this that one should ignore matters of style and 'rhetoric'; on the contrary, these can provide the clue to the author's intentions.
This leads me back to Professor Bronfenbrenner's question — if my position on Ricardo is correct, how to explain honest misreadings? It is not, I would say, strictly a matter of misunderstanding that has emerged 'over the generations which separated modern from classical economics. I illustrate from Malthus's reading of Ricardo on profits: 'to attempt to estimate the rate of profits in any country by a reference to this cause alone [diminishing agricultural returns], for ten, twenty, or even fifty years together, that is for periods of sufficient length to produce the most important effects on national prosperity, would inevitably lead to the greatest practical errors.
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Yet notwithstanding the utter inadequacy of this single cause to account for existing phenomena, Mr. Ricardo in his very ingenious chapter on profits, has dwelt on no other' , ; or again, the facts were 'diametrically opposed to the theory of profits founded on the natural quality of the last land taken into cultivation' Ricardo protested: 'Mr.
Malthus here brings a charge against me which he would find it very difficult to prove. He has himself Page Section I of this Chapter stated his causes for the fall of profits' — agricultural productivity and variable corn wages. As for the second formulation, he could scarcely contain himself:. This is disingenuous. Profits are increased, either by diminishing the quantity of labour bestowed on the last land which yields a given produce, or by increasing the produce with a given quantity of labour.
Malthus will I am sure not say that I have ever denied this principle — he will not say that I have not distinctly advanced it A second instance of 'misrepresentation' relates to value theory: '[W]hen you reject the consideration of demand and supply in the price of commodities and refer only to the means of supply, you appear to me to look only at the half of your subject.
No wealth can exist unless the demand, or the estimation in which the commodity is held exceeds the cost of production: and with regard to a vast mass of commodities does not the demand actually determine the cost? Ricardo immediately protested: 'I have never disputed this' 24 November; And again he explained his position, in this case the weight placed on production costs as the determinant of supply conditions in the face of changes in demand: 'I do not dispute either the influence of demand on the price of corn and on the price of other things, but supply follows close on its heels, and soon takes the power of regulating price in his own hands, and in regulating it he is determined by cost of production.
I acknowledge the intervals on which you so exclusively dwell, but still they are only intervals. Part of the blame for the propensity to misunderstand Ricardo reflects the linguistic complexity, though I find that one quickly becomes accustomed to Ricardo's specialized terminology and learns to translate. A focus on his strong cases — including forms of expression designed to convey the 'primacy' of supply in value formation see Chapter 12 — explains some of the error, though again I find the Principles itself to be clear on the main lines of my interpretation with respect to allocation and growth and the interdependency between them.
As Jacob Viner put it, a concentration on the long-run and a tendency to omit 'explicit mention of qualifications whose validity he was prepared to acknowledge' enabled critics 'to expose him to rebuttal often more damaging in appearance than in fact' , There is also the matter of technical error. For example, at one point in a recent account of Ricardo on policy, Mark Blaug attempts an ecumenical exercise suggesting that while Pasinetti — who develops the constant subsistence-wage growth interpretation:.
It is not possible, therefore, to square everything that Ricardo said with any totally consistent formulation of the entire Ricardian system' b, Here Blaug repeats a perennial error. The New View can and does accommodate Ricardo's 'unambiguous' statement, since the falling real wage is part and parcel of that same process which drives down the profit rate, and the profit rate falls precisely because the cost of producing the basket necessarily rises albeit that the magnitude of the basket declines.
Blaug is not alone. Even Stigler was not immune see Chapters 15, It was Ricardo, as mentioned already, who taught Malthus that the falling real wage cannot prevent the fall in the profit rate, but the lesson has not yet been absorbed. Misinterpretation of Ricardo has, I believe, also been compounded by a presumption that, to avoid anachronistic readings, the researcher must pretend to lack knowledge of the future beyond the period under study.
Of course we must never superimpose on an early writer reference frameworks that were developed only after his death or even after a particular moment in his career Skinner , 6. But this does not require that we avoid modern vocabulary and categories.
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One is writing, after all, for modern readers. More important, there is also a danger of denying the presence in an early writer's work of modern concepts merely because they are expressed differently — a sophisticated form of anachronism. Tracing the filiation of ideas may actually be impeded by a pretence of ignorance, a pretence implicit in a complaint that the debate over Ricardo has 'taken on all the characteristics of a bitterly contested paternity suit, with one side battling for Ricardo's custody within the "neo-classical" home, the other for his adoption within the "Sraffian" home.
My contribution to this debate is simple. Leave him within his own surroundings' Peach , Nowadays, we are still in the year ; it is easy to see that the quantity theory of money doesn't fit very well with reality. The European Central Bank, as well as the corresponding banks in the United States and Japan, flooded the market with money, but that has no impact on prices. On the contrary. The bigger decrease is deflation, a decrease in prices.
The money generated lead to bubbles in the stock market but did not have any impact on prices. The quantity theory of money can be conceived in two different versions. In the first version paper money fiat money is backed by gold and in the second version gold does not back it. In the version of David Ricardo, paper money is backed by gold.
Economic growth depends on know how and innovation and not on "capital"
In the time of living of David Ricardo only something scarce by nature, something that cannot be multiplied arbitrarily, like gold, could serve as money. Nowadays money is kept scarce by law. Besides that, only things that have some other characteristics can serve as money. It must be easy to transport them, it must be possible to split them up into small entities and these entities must be homogeneous. Precious stones, for instance, don't have these characteristics.
If a big diamond is split up into little ones; the little ones all together are less valuable than the big one. Copper and platinum would be an option. However, the production of copper is not steady enough and platinum is too seldom. Actually, there are only a few options and if we put aside strange means of payment like shells, pearls finally gold and silver imposed themselves as means of payment. Copper coins actually existed, but from the fact that they disappeared, we can assume that people didn't trust these coins.
David Ricardo was not an entrepreneur.
He earned his money on the stock market and what he possessed was money. Something very different than capital. His interest was, therefore, the stability of money. Inflation would have reduced his fortune.
His interest was, therefore, to keep money scarce and interest rates high. Entrepreneurs are most of all interested in low-interest rates. He had the same problem savers have today, we are still in the year Savers want high-interest rates and they don't want that the central banks flood the market with money.
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The problem is that the interest of savers is opposed to the interest of entrepreneurs. They want to invest and create jobs and, therefore, interest rates have to be low. For a more detailed discussion see interest rates. As we already said, Keynesian theory cannot be understood if the term capital and money are mixed. For more information, see the booklet downloadable from the start of this website.
The theory of David Ricardo is completely wrong. We don't present it here because it is relevant to the understanding of the real world. We present it to illustrate some basic errors in thinking we find on a daily basis in newspapers, television debates, "scientific articles" etc. The monetary theory of David Ricardo is often compared to the theory of Milton Friedman.
Both argue in favour of a steady increase in the monetary basis. However, monetarism is completely different. Monetarism assumes the same monetary transaction mechanism as Keynes, but under wrong premises, full employment, he gets to the same results as David Ricardo. The problem is that in a situation of full employment, Keynes gets to the same results as well. In case of full employment, an increase of the amount of money will lead to inflation. In the present state of the law, they have the power, without any control whatever, of increasing or reducing the circulation in any degree they may think proper: a power which should neither be intrusted to the State itself, nor to any body in it; as there can be no security for the uniformity in the value of the currency, when its augmentation or diminution depends solely on the will of the issuers.
Even if we accept that the amount of money can be arbitrarily manipulated by the state, actually not true today, most central banks are independent of the government, it is unclear why it would be better if the amount of money would be kept arbitrarily scarce. That would fit the interests of the people who have money, but wouldn't fit the interest of the economy as a whole. The stability of the money would be guaranteed if the Bank of England were obliged to change paper money, fiat money, at any moment to gold in a prior fixed exchange rate.
However, that doesn't literally mean that gold backs paper money. The mechanism is a little bit more complex. Let's say that a certain basket can be bought for dollars or five grammes of gold and the exchange rate is 20 dollar for on gramme of gold. In this situation, people have no incentive to change paper money for gold. It doesn't matter if they pay with gold or paper money; they always get the same basket of goods.
This changes if prices, wages and the prices of goods, increase.