David Ricardo’s Influence on Economic Methodology

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David Ricardo was a stock broker from Britain that became interested in the ideas of economics. He focused on policies and how they influence the economy which lead him to make many great advances in the field of economics. Included in these advances were his labor theory of value that stated that the price of a good was determined by the amount of labor that went into creating that good, his idea of comparative advantage which states that international trade benefits both countries involved because a zero sum gain does not exist, but instead both countries end up in a better place than if they were not trading due to the differing efficiencies of each country's production, and his original theories on wages, profits, and rent. It can be argued though that his most influential contribution to modern day economics is the transition away from a contextual approach of economics to a more theoretical and quantitative approach.


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Ricardo’s Methodology:
Ricardo’s method differed from the other classical economists of his time. Instead of approaching economic policy from a contextual method like Adam Smith did, Ricardo solved policy problems in a purely abstract manner. By theorizing about the current economic conditions versus using historical conditions, Ricardo was able to formulate policies that he believed best fit the economic climate of the time. For example, Ricardo advocated for getting rid of the Corn Laws because he abstracted the idea of comparative advantage and not allowing other countries to trade their wheat and other produce at competitive prices was only benefitting the small minority of landowners while harming consumers and other worldwide wheat suppliers.


Impact on Modern Economics:
Ricardo’s focus on theory has greatly shifted the methodology of modern day economics. There are many schools of thought that focus primarily on the theory of economics without taking much regard to contextual analysis. It is sometimes believed that through creating abstract economic models, the best economic solutions can be established. Due to concrete nature that economic models are supposed to provide, many economists focus on creating such models versus studying economic history and trying to gain an idea of what may come to be or what to do in specific economic conditions. Another component of modern day abstract models is that they can be tested and changed over and over again to best fit the characteristics of the present economy. Contextual analysis does not provide that leeway and can not be changed or adapted to fit current conditions which is another reason why theoretical analysis has been so widely adopted.

Critique’s on Ricardo’s Methodology:
Although Ricardo’s methodology has made its mark on modern day economics, there are some critiques. Many economists in this school of thought are so micro focused on the models and theories being created, they lose sight on how it may actually apply to the current economic issues of the time. If the theories are not applicable, then there is no reason to spend all of that time and focus on creating something that can not be used. There are so many assumptions that go into the models being created that sometimes leave the theories and models without a strong foundation. There is also the problem of freezing variables to be able to run the model which can sometimes be unrealistic in dealing with situations happening in reality. The argument that although the model will statistically be accurate, time after time, history has proven this wrong. For example, the recent housing market bubble and financial crises was said to be impossible by the models that were created to regulate the market at this time, but it happened regardless. The following excerpts share these sentiments and provide critiques of the modern day economic methods that stemmed from Ricardo.

“… it is a commonplace criticism of modern economics voiced by those who are uncomfortable with it that the subject is becoming increasingly mathematical, indeed, that the gap between economic models and "reality" is ever-increasing.”
“If my reading of the shift in economics research over the past quarter-century or so is even approximately correct, it should be a puzzle that modern economics has recently come under attack -often virulent attack - from both without and within the profession for its lack of contact with "reality"”
-Partha Dasgupta, Modern Economics and its Critics, 1

"The worldly philosophers thought their task was to model all the complexities of an economic system -- the political, the sociological, the psychological, the moral, the historical," Heilbroner said. "And modern economists, au contraire, do not want so complex a vision. They favor two-dimensional models that in trying to be scientific leave out too much and leave modern economists without a true understanding of how the system works."
-Robert L. Heilbroner, The Worldly Philosophers


References:
Bentley, N. (1971). The victorian scene:1837-1901. (p. 111). London, England: Spring Books. Retrieved from http://www.victorianweb.org/history/cornlaws4.html

Dasgupta, P. (1998). Modern economics and its critics, 1. Informally published manuscript, Economics, University of Cambridge, Cambridge, United Kingdom. Retrieved from http://www.econ.cam.ac.uk/faculty/dasgupta/modecon.pdf

Heilbroner, R. L. (1972). The worldly philosophers: The lives, times, and ideas of the great economic thinkers. New York: Simon and Schuster.

Landreth, H., & Colander, D. (2001). History of economic thought. (4 ed.). South-Western College Pub.

Uchitelle, L. (1999, January 23). A challenge to scientific economics; an older school looks at a broad, more intuitive picture while modernists see just the numbers and facts. The New York Times. Retrieved from
http://www.nytimes.com/1999/01/23/arts/challenge-scientific-economics-older-school-looks-broad-more-intuitive-picture.html?pagewanted=all&src=pm


David ricardo portrait. (n.d.). Retrieved from http://www.lastar.org/?page_id=301