An Attempt at a Rigorous Restatement of Ricardo's Long-Run Equilibrium

In: Canadian journal of economics and political science: the journal of the Canadian Political Science Association = Revue canadienne d'économique et de science politique, Band 26, Heft 1, S. 74-86

Abstract

Ricardo's Principles are the most difficult book on economics ever written. It is difficult enough even to understand it, more difficult to interpret it and most difficult to estimate it properly.–Joseph A. SchumpeterJudging the accomplishments of the past by the standards of the present, perhaps each generation must make its own attempt at understanding the great masters. It has been said that "Ricardo was the first to present a complete model—one which, for all its faults, was self-consistent and displayed the whole economy as a single interdependent system." The present paper is an attempt to isolate that self-consistent model and to set it out rigorously. Anyone trying to isolate it must be painfully aware of the possibility that what he is removing may be more valuable than what he is preserving. However, the criterion of consistency leaves him little choice. Having isolated the self-consistent model, he must relate it to our own thinking. The latter emphasizes aggregation, occupies itself increasingly with the underdeveloped two-thirds of the world, and sees no "law" of diminishing returns outside agriculture. In these three senses it is becoming more Ricardian.Consider three sectors, each producing a homogeneous product or service, that is, a consumers' goods industry, a producers' goods industry, and a labour household sector. The subscripts used to designate the three sectors are c, p, and l, respectively. The consumers' goods industry is facing a production function having one output and three inputs in it. The output consists of consumers' goods, the inputs consist of labour services, services rendered by durable man-made producers' goods, and services rendered by indestructible nature-given land.