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David Ricardo’s Liberal Economic Theories Essay


Biography

Born in 1772, David Ricardo belonged to the pleiad of classical economists and is primarily known for his support of liberal theories and concepts. Though it might sound trite, it seems that Ricardo was destined to make a huge change in the very design of human relationships from the very start of his journey.

The fact that he was born into an outstandingly diverse family as opposed to the rest of his peers alone is worth viewing as the primary factor that contributed to his rapid progress and helped him acquire the basic knowledge about societal and economic interactions. Though born in Spain, Ricardo had a Sephardic Jewish heritage: “In the year 1692 there died in Amsterdam a Jew named Samuel Israel. He was buried at Oudekerk; and he was the great-great-grandfather of David Ricardo” (Weatherall 1).

Although it would be quite a stretch to claim that the change of location that Ricardo was subjected to as he was a child predetermine his further career. However, it is still worth noting that, at a comparatively young age, he experienced a change in environment as his family moved to Amsterdam, which was swarming with financial and economic opportunities., Credited as the global financial center at the time, it provided the background that young David needed to understand the very mechanism of financial and economic activities, as well as become enthusiastic about the plethora of opportunities that the world of finance opened in front of him.

Needless to say, as Ricardo became older, he integrated into the environment of the global economy quite successfully. However, working as a stockbroker, he could not gain much recognition; it was not until he designed an elaborate system of loans based on determining the outcome of the Waterloo event. The above entrepreneurship would later on become famous as the Waterloo Loan and would create prerequisites for Ricardo to become a world-renowned economist.

Apart from excelling in his financial skills, Ricardo also gave enough credit to the weight and importance of political power. Primarily, he acknowledged it by making endeavors at becoming a part of the political realm. Raised in the environment that supported economic, personal and political freedoms, and developing an understanding of the significance thereof in the economic environment, Ricardo promoted liberal movements as the foundation for the further improvement of the economic environment.

Unfortunately, unlike the economy, the healthcare system developed at a rather slow pace, therefore, failing to provide the environment for people to live long. On September 11, 1823, Ricardo died of an ear infection. Although he lived a rather short life, Ricardo will always be remembered as one of the people that made a huge change in the realm of economy, thus, determining its further course.

Theories

Monetarism

When it comes to identifying the theories that are traditionally related to Ricardo, one must mention the theory of Monetarism first. The theory in question is linked to a peculiar episode from Ricardo’s’ life. According to the existing records, the economist wrote a letter, in which he confronted the financial policy supported by the Bank of England. Particularly, Ricardo stated that the financial issues that occurred to the United Kingdom at the time could be explained by the tendency of the above institution to print excessive amounts of money.

Although the arguments voiced y Ricardo would have been taken with a grain of salt by modern economists, as the philosophy of monetarism is currently taken with a grain of salt, the economist’s voice was heard at the time. As a result, Ricardo created premises for the quantitative theory of money to be designed.

Comparative Advantage

Another theoretical framework designed by Ricardo, the concept of comparative advantage, can be referred to as the framework detailing the significance of engaging in trade despite the obvious dominance of a specific party in the target area.

Theory of Free International Trade

The theoretical framework of the Theory of Free International Trade (TFIT) is, perhaps, the most famous and widely spoken theory created by Ricardo. Although it has not had the magnitude of the Comparative Advantage framework, it is still well known due to its reception among critics, who considered it inspiring, and the general audience, who wholeheartedly rejected it. Unlike the theories mentioned above, the TFIT concept was supposed to address a very specific issue, i.e., the problem of rent in Great Britain. Therefore, the theory under analysis can be viewed as comparatively narrow.

Theory of Distribution

Finally, the Theory of Distribution (TD) needs to be brought up as the crowning achievement of the economist. Scholars notice that the propensity to develop several theories at once instead of focusing on a single framework and developing it to the point where it gains the necessary potential and momentum could be explained by the fact that the economy was trying to locate the solution that would keep all stakeholders involved satisfied.

More importantly, Ricardo’s primary endeavor concerned designing the ultimate theory that could explain every single process occurring in the economic environment: “Ricardo’s theory of rent was tied directly to the marginal productivity of land, his theory of value was tied directly to labor costs, and his theory of distribution stood atop both concepts, with Malthusian economic stagnation as a major assumption” (“David Ricardo” par. 15).

Evaluation

All of the theories proposed by Richards as the key to the analysis and understanding of the large economic processes have contributed to the evolution of the economic theory significantly. While some of them did not stand the test of time and were finally dismissed, whereas others were inapplicable to the contemporary realm of informational technology, each of the frameworks served the purpose of furthering the economic knowledge.

Therefore, it can be considered that the theories suggested above have the tendency to evolve into the concepts that would later become a part of even more complex frameworks. The identified trend is quite understandable and expected in light of the fact that the global economy implies the integration of economic activities of a range of states. As a result, the prerequisites for creating multi-level models that allow analyzing the relationships between all the variables involved are created.

While the gap between the time period that Ricardo lived and worked in and the current realm of the global economy is huge, the theories suggested by the economist still affect the contemporary market and the corresponding business relationships. Therefore, drawing on the ideas that were sparked in the past and considering some of their elements as the agents that may spark change in the modern global market is a crucial step toward promoting change in the target environment. While it is crucial to be innovative and suggest new tools for operating in the global economy, past experiences may serve as essential help and even the foundation for creating new theoretical frameworks.

Present

Although Ricardo lived in a completely different time period that had very little in common with the current economic environment, some of the theories suggested by the economist can still be applied to analyze the context of the contemporary economic environment. For instance, the Comparative Advantage Theory mentioned above can be viewed as the predecessor of the Competitive Advantage concept that makes an essential part of the modern economic processes.

One must admit, though, that the phenomenon of the competitive advantage has not warranted the title of theory and only represents a part thereof. According to the existing taxonomy, the phenomenon is related to Game Theory. However, the concept of competitive advantages often used on its own to showcase the essential characteristics that a company needs to acquire prior to entering the environment of a specific market (traditionally, the context of the global market is implied).

One must admit, though, that the theory of Comparative Advantage is one of the few theoretical frameworks that survived the test of time and managed to serve as the foundation for the further exploration of economic opportunities. The Monetary Theory, in its turn, failed to grow into a self-sufficient framework or a concept that would, later on, become the bulk of a new theory.

Who was Jean Baptiste Say? Why is he important in IPE? Explain

Biography

Jean Baptiste Say was born in France, yet his family moved to Geneva shortly after his birth. Spending his childhood there, Say received a Baptist upbringing and education, thus, developing a set of rigid ethical standpoints. Moreover, the above upbringing caused him to support the Liberal movement, demanding that people should be provided with their irrefutable rights and freedoms, including the economic and political ones.

While not much is known about the economist, there are numerous records about his accomplishments in the theory of economy. Primarily, his stance on economic depression needs to be brought up. Say insisted that overproduction in certain markets combined with the failure to meet the customers’ demands in others creates the conflict that will, later on, develop into an economic or financial depression (“Jean-Baptiste Say” par. 1-7).

It is quite remarkable that Say tried to affect both the economy of the United Kingdom and that of the United States. Particularly, Say reinforced the significance of Adam Smith’s laws as the primary tools for understanding the nature and components of the global economy. In addition, he would always insist on the utility of the user as opposed to the utility of the value (Sandelin, Trautwein, & Wundrak, 2013).

IPE: Definition

Before outlining the significance of Say’s ideas in the IPE realm, one must identify the phenomenon under analysis. Although the abbreviation is commonly used along with Say’s name, its essence is not that easy to capture. According to the existing commentaries on the subject matter, there has not yet been any agreement on how IPE should be defined.

The reasons behind the conflict concerning the issue of IPE can be explained by the fact that the concept contains too many notions and, therefore, it is extremely hard to capture all of them in a single definition. The fact that the identified idea has been placed in the context of the global economy and, therefore, is surrounded by a variety of factors, including the economic, the political, the financial, and the sociocultural ones, makes the process of identification even more difficult. As Telo explains,

It is not straightforward to give a definition of IPE – and certainly not a generally-agreed, all-encompassing definition – because there are too many conflicting opinions about what it is and how it should be practiced. As with many things in IPE, this is an issue on which diversity has become more apparent the older the subject field has become. (Telo 146)

Nevertheless, there are ways to identify the phenomenon of IPE. Before going into details, one must address the obvious and translate the abbreviation. Telo states that IPE stands for the International Political Economy. Given the fact that the realm of international politics requires consistent supervision so that the key economic and financial processes could occur in a timely manner and that the negotiation processes should be carried out smoothly, a solid and time-tested framework has to be applied to the target environment to control it.

IPE: Significance

The significance of Say’s theories as per their effect on IPE can hardly be overrated. A closer look at the subject matter will show that Say practically prompted the further development of IPE as a phenomenon.

Detailing the unique elements that made Say’s theory so popular, one will notice that the economist suggested replacing money as the factor determining the economic growth of a specific state or cooperation thereof with a variety of production factors. At first sight, the idea of eliminating the monetary elements from the economic equation is absurd as the very processes thereof are carried out with the help of financial assets.

However, looking into the issue, one will have to admit that the processes occurring in the environment of the global economy, in general, and the market of a certain state, in particular, are dependent on economic, technological, sociocultural, and business factors, whereas money serves primarily as a medium that facilitates the cooperation between the parties involved.

The shift from the strictly financial framework that used to define the decision-making strategies in the target economic environment to a more flexible approach that allowed taking other factors into account served as the means of creating a sustainable approach that would allow increasing the rates of economic growth.

More importantly, it could be assumed that the current tools for the measurement of economic performance owe their existence to Say’s theory. Indeed, the idea of incorporating the factors such as the political features of a state, the sociocultural environment thereof, and the rates of technological progress into the PEST framework would not have emerged without the theory suggested by Say.

However, would not go as far as claiming that the above factors could define the economic environment; quite on the contrary, at the very beginning of the theory development, they would have been considered unrelated as well. Instead, the theorist pointed to the fact that money should be viewed as the tool for exchanging products and not the end in itself: “Economic growth solely depends on the number of production factors” (Deugt & Hoen, 2010, p, 28).

A further study of the issue in question will reveal that the refusal from taking the monetary factor into account as having a strong influence on the course of the economy stems from the need to isolate the tools used to enhance the related processes and the actual independent factors that affect the target environment:

Since monetary income will always be spent, be it directly or indirectly, money simply cannot be a distributing factor. Money is just a means of exchange, and it is important to look through the monetary veil and focus on real production factors that determine the process of economic growth, (Deugt & Hoen, 2010, p, 28)

The reasoning provided by the author, therefore, defined the course of the further economic relationships on the world arena. Indeed, though financial assets and their further allocation strategies play an important role in the international relationships, they only serve as the means of promoting certain solutions yet do not define the choice thereof.

In addition, the switch from considering money the primary agent in the target environment to viewing it solely as the mediator between the parties involved in a particular economic operation helped raise the issue concerning competition in the global economy realm.

In addition, Jean Baptiste Say is often mentioned when it comes to discussing the connection between supply and demand. Particularly, the framework known as Say’s Law is rendered in a number of ways in the contemporary media. The idea postulated by the author as one of the foundational principle of a market’s operation states that supply may affect demand rates and, in fact, create its own demand. However, one must debunk the myth that has been supported for a countless number of years and admit that it was, in fact, John miller, who came up with the idea of viewing demand as dependable on supply.

Say’s theory, even deprived of the above discovery, is nonetheless impressive. The Fact that the concept of international economic relations was finally viewed as partially independent from the monetary transactions and, more importantly, being affected by other factors was the revolutionary idea that the economy needed at the time to continue the global progress.

Thus, although belonging to the 18th century, Say, nevertheless, affected the process of IPE shaping and its further emergence and development on a very profound level. The change in the primary focus of the economic processes, therefore, served as the means of directing the international political and financial relationships the required way. As a result, prerequisites for sustainable cooperation and mutual support was created in the target environment.

The above changes helped improve the cooperation between the members of IPE. In other words, the theoretical foundations designed by Say made the very existence of IPE possible.

Claiming that Say’s theory is innovate even nowadays would be quite a stretch. Even though ti has a range of reasonable ideas, it seems to have worn out its welcome and become trite. Therefore, to make it applicable to the global economy environment and as useful as it was when it was pioneered by Say, it will be required to update its key concepts by incorporating the elements of other frameworks into it. Thus, a platform for devising the future communication management approaches in the context of the global market will be created.

Works Cited

n. d. Web.

Deugt, N. D., & Hoen, W. H. (2010). Dovetailing economics and political science. Netherlands: Uitgeverij Van Gorcum.

n. d. Web.

Sandelin, B., Trautwein, H. M., & Wundrak, R. (2013). A Short history of economic thought. New York, NY: Routledge.

Telo, Mario. Globalisation, Multilateralism, Europe: Towards a Better Global Governance? Burlington, VT: Ashgate Publishing, Ltd., 2013. Print.

Weatherall, Dean. David Ricardo: A Biography. New York, N: Springer Science & Business Media, 2012. Print.

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IvyPanda. (2020, September 8). David Ricardo's Liberal Economic Theories. Retrieved from https://ivypanda.com/essays/david-ricardos-liberal-economic-theories/

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IvyPanda. "David Ricardo's Liberal Economic Theories." September 8, 2020. https://ivypanda.com/essays/david-ricardos-liberal-economic-theories/.

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IvyPanda. 2020. "David Ricardo's Liberal Economic Theories." September 8, 2020. https://ivypanda.com/essays/david-ricardos-liberal-economic-theories/.

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IvyPanda. (2020) 'David Ricardo's Liberal Economic Theories'. 8 September.

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