Ricardo, the ‘Modern’ Economist?

David Ricardo is revered by many economists as the first ‘modern’ economist – and equally blamed by others – for having introduced abstract reasoning into economics. Both sides believe him to have initiated a style of economic argument characterized by the use of small, idealized examples that seem to be hypothetical and unconnected to the world in which he lived, but Ricardo himself found them useful in arguing about practical problems and events. This description of his way of arguing suggests that Ricardo was one of the pioneers of economic modelling.

Consider first an example widely known to economists: Ricardo’s argument in favour of free trade based on his notion of comparative advantage. He made his case using a little numerical example of the trade in wine and cloth between Portugal and England, drawn from the experience of his day. Though Portugal could produce both goods with less labour (i.e., she had an absolute advantage in the production of both goods), his verbal argument with the numerical example showed how it was advantageous for both countries to specialise and produce only that good in which they each had a comparative advantage (England in cloth and Portugal in wine) and then to exchange those goods with each other. The numerical example works so well that it has continued to feature, sometimes even with the same countries and goods, to demonstrate the theory of comparative advantage in modern textbooks (even though economists no longer believe in the labour theory of value that underlies the way the numerical example worked for Ricardo). This 200-year-old example fits the way that modern economics is often taught at an elementary level in terms of a small world, a world of two goods and two consumers: Ricardo’s example seems already a modelled world.