Ricardo's Theory of Growth and Accumulation

A Modern View

Neri Salvadori

• Publisher: Routledge
• Year: 2020
• eBook ISBN: 9781000088908
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In the aftermath of the Napoleonic Wars Britain found itself faced with a stagnant economy. Economist David Ricardo believed that the full re-integration of Britain into the world market would allow for both capital accumulation and population growth, and used arguments that anticipate ideas entertained in modern contributions to the theory of economic growth and development. However, several of these arguments have not yet been translated into the language of modern classical economics. Ricardo's Theory of Growth and Accumulation seeks to overcome this striking lacuna.

The latest entry in the Graz Schumpeter lecture series, this text explores and elaborates Ricardo's arguments and the models utilized by those who subsequently followed in support of his work. The Ricardian system is first examined through a one-sector economy, following Kaldor's model, and a two-sector economy, following Pasinetti's model. These building blocks are developed through the exploration of a small open economy, which allows an analysis of the impact of international trade in exceedingly simple circumstances. This discussion expands further by considering the world economy. More sophisticated variants of the two-sector model are presented, in which commodity prices are endogenously determined by the trading interplay amongst several countries. A final analysis makes Ricardo's case by introducing accumulation in the world economy.

This book is of interest to students and scholars of Ricardo, classical economics, and – more broadly – growth theory, the theory of international economics, and globalization. The author was keen to render the analytical parts compelling to the historian and the historical parts compelling to the theorist.

1 The one-sector model

The Works and Correspondence of David Ricardo (hereafter Works) had a major impact on the way in which the Classical economists and especially Ricardo were seen. Piero Sraffa’s Introduction in Volume I (Sraffa, 1951) “penetrated a hundred years of misunderstanding and distortion” (Eatwell, 1984 [1995], p. 76). In the first half of the twentieth century, following the lead of Alfred Marshall’s Principles of Economics (1890), a fairly wide consensus dominated the interpretation of the Classical economists’ contribution to political economy. In a nutshell, Marshall portrayed Adam Smith, David Ricardo, and other authors he dubbed “Classical” as precursors of his own theory of demand and supply (see, in particular, the famous Appendix I, “Ricardo’s theory of value”). By contrast, Sraffa created “a vivid rationale for the structure and content of surplus theory” (Eatwell, ibidem). According to Sraffa’s interpretation, Classical economists are advocates of a totally different theory, based on what has subsequently been called the “surplus” approach to the theory of value and distribution (see Garegnani, 1984).

Indicative of the attention Sraffa’s edition received in those years, let us recall the observations by George J. Stigler in his review of Works for the American Economic Review:

Ricardo was a fortunate man. He lived in a period – then drawing to a close – when an untutored genius could still remake economic science. He lived in a nation where two great problems, inflation and free trade, gave direction and significance to economics. And now, 130 years after his death, he is as fortunate as ever: he has been befriended by Sraffa – who has been befriended by Dobb.

(Stigler, 1953, p. 586)

Following Sraffa’s interpretation, Ricardo’s procedure to tackle the issue of value and distribution (and not that of capital accumulation and growth of population) may be divided into four steps. The first step consisted in eliminating the problem of rent: “By getting rid of rent, which we may do on the corn produced with the capital last employed, and on all commodities produced by labour in manufactures, the distribution between capitalist and labourer becomes a much more simple consideration” (Works VIII, p. 194). The second step consisted in trying to overcome the problem of value by assuming the “corn model”, namely, by assuming the existence of a sector, corn, in which inputs and outputs coincide and, therefore, the rate of profits can be ascertained directly as a ratio of quantities of corn without any need for recourse to prices. Since Ricardo accepted Malthus’s criticism that there is no sector in which the commodity produced is exactly of the same kind as the capital advanced, a third step was required. In On the Principles of Political Economy and Taxation, Ricardo presented a fully fledged theory of value, according to which the relative value of the various commodities is governed by the quantities of total labour needed for their production. Hence, as Sraffa concluded,

the rate of profits was no longer determined by the ratio of the corn produced to the corn used up in production, but, instead, by the ratio of the total labour of the country to the labour required to produce the necessari...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of illustrations
• Preface
• 1 The one-sector model
• 2 The two-sector model
• 3 The small open economy
• 4 The world economy: existence of an equilibrium
• 5 The world economy: the dynamics
• References
• Index