Source: This essay first appeared in the journal Literature of Liberty: A Review of Contemporary Liberal Thought, Vol. II, no. 3, July/September 1979 published by the Cato Institute (1978-1979) and the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio. Although the editorials were unsigned, they were probably written by the Editor Leonard P. Liggio or the Managing Editor John V. Cody. It is republished with thanks to the original copyright holders.
David Ricardo (1772-1823) made an unexpected contribution to liberty. A successful broker in government bonds, always interested in intellectual and scientific studies, but unaccustomed to research and writing, Ricardo's essays and books were an advancement of liberty which could not have been predicted. Once published, Ricardo's thought became one of the foundations for nineteenth century intellectual activity. Joseph Schumpeter believed that Ricardo, building on Richard Cantillon and Adam Smith, had created an impressive instrument of analysis.
Thomas Malthus and Ricardo were acquainted for a dozen years, yet they were in fundamental disagreement on methodology.2 Similarly, Malthus's emphasis on insufficient aggregate demand (underconsumption theory) was contrary to one of the central principles of economics, Say's Law of Markets. By contrast, James Mill and Ricardo enjoyed an identity of method and principles. Mill persuaded Ricardo to read such major thinkers as John Locke, David Hume, and John Millar (Adam Smith's pupil) and to write his major works in political economy. Mill himself had been a student in Edinburgh of the Smithian Dugald Stewart, and transmitted Stewart's approach to Ricardo.
During David Ricardo's lifetime England experienced the completion of the wrenching transformation from an agricultural to a growing industrial society—the Industrial Revolution. Much anxiety was expressed whether the country could sustain over time the level of prosperity which industrial growth was providing. Ricardo's writing sought to provide correct answers from political economy to these problems. In addition, the almost quarter century of war placed a great strain on English society. Taxation and government loans siphoned off huge amounts of monies that otherwise would have gone into productive investments: the small householder was compelled to pay taxes and the great financier was lured to invest in government securities rather than industry. The government's recourse to indirect taxation through the inflationary issuing of paper money created still further economic dislocation.
Indeed, addressing these dislocations, Ricardo's earliest economic contributions in 1809 (Three Letters on the Price of Gold) were critiques of inflation and paper money. As one of the most successful, and shrewdest men in the money market, Ricardo brought to the subject detailed knowledge of the nature of money and the consequences of government intervention in money through central bank expansion of money. His rigorous objections to paper money systems laid the foundation for sound monetary policy for a century. Today, a half century of disquieting experience with the volatile monetary system has reawakened interest in the economic principles Ricardo espoused.
Last modified April 13, 2016