Methods, Economic Policy, and Scope of David Ricardo

Beyond his contribution to purely theoretical economics, David Ricardo has had a significant impact on the evolution of economic thought. He also shifted the focus of economics away from Adam Smith’s method and scope of economics and he used his abstract analysis of tariffs, that are a raging political issue at that time. 

Methods of Ricardo 

Ricardo is an example of a pure theorist at work. He abstracted from the economy and used the deductive method focusing on policy issues like tariffs on grain importation and income distribution. Ricardian economics is strongly focused on policy, even though Ricardo’s method can give the impression that he was a purely theoretical, impractical economist to the common observer. Although his mathematical technique was somewhat clumsy, he is nonetheless revered by pure theorists today. 

Ricardo and economic policy 

Ricardo’s policy approach significantly influenced subsequent economists’ policy making methods. Using Ricardo as a model, the best method to develop good policy is to create a highly theoretical model that will identify the causal relationships between variables by abstracting from the nonessential.  

Ricardianism consists of highly abstract theory and non-contextual policy making based on abstract models. Some view this as a dubious heritage, while others argue it’s essential for economics to abstract from reality and develop policy solutions in a non-contextual framework. However, a review of economic thought and policy history doesn’t provide a clear answer to the appropriate degree of abstraction and contextual analysis. 

The Scope of Economics – According to Ricardo 

According to Ricardo, the principle purpose of economics is to identify the laws that govern the distribution of income among landlords, capitalists, and laborers.  

Ricardo was focused on what is now known as the functional distribution of income or the proportions of annual output that go to labor, land and capital in that order.  

Ricardo’s interest in income distribution led him to study changes in relative prices over time. His main concern was how income distribution affected the growth of the economy and the accumulation of capital. His labor theory of value influenced subsequent attempts to explain relative prices. However, Ricardo’s victory over Malthus in the macroeconomic stability debate closed the topic for nearly a century. 

Written by; D.M.A.S. Gunawardana 

References  

Stanley,L and Randy,R.(2013) The Evolution of Economic Thought(8th edition) .[online].Available at https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://handoutset.com/wp-content/uploads/2022/05/The-Evolution-of-Economic-Thought-Stanley-Brue-Randy-Grant.pdf&ved=2ahUKEwjl08qqk_iAAxX6dPUHHWQJC5Q4HhAWegQIChAB&usg=AOvVaw1r8kZJFdBDxtq6zvGJt5Cc Accessed on 01st of September 2023.