David Ricardo had set forth his most famous work, Principles of Political Economy and Taxation, 1817.
He opens the first chapter with a statement of the labor theory of value, and demonstrates later in this chapter that prices do not correspond to this value.
He retains the theory, however, as an approximation.
The labor theory of value states that the relative price of two goods is determined by the ratio of the quantities of labor required in their production.
Ricardo will continue to work on his value theory to the end of his life.
Ricardo is responsible for developing theories of rent, wages, and profits.
Like Adam Smith, Ricardo is also an opponent of protectionism for national economies, especially for agriculture.
Although Smith had preached free trade, he could not show when and how the trade is profitable.
It is Ricardo who makes it clear by the logic what is now called comparative advantage.
Another idea associated with Ricardo is Ricardian equivalence, an argument suggesting that in some circumstances a government's choice of how to pay for its spending (i.e., whether to use tax revenue or issue debt and run a deficit) might have no effect on the economy.
Several authorities consider that Ricardo is the source of the concepts behind the so-called Iron Law of Wages, according to which wages naturally tend to a subsistence level; others dispute the assignment to Ricardo of this idea.
Ricardo's ideas have a tremendous influence on later developments in economics.
United States economists rank Ricardo as the second most influential economic thinker, behind Adam Smith, prior to the twentieth century.
With his highly logical arguments, he has become the theoretical father of the classical political economy.
Born in London, Ricardo was the third of seventeen children of a Sephardic Jewish family of Portuguese origin who had recently relocated from the Dutch Republic.
His father was a successful stockbroker.
Ricardo had eloped at age twenty-one with a Quaker, Priscilla Anne Wilkinson, leading to estrangement from his family.
His father disowned him and his mother apparently never spoke to him again.
At the time of his marriage, Ricardo had disconnected from Judaism and became a Unitarian.
Without family support, he started his own business as a stockbroker, in which he had become quite successful owing to the connections he had made when working with his father.
During the Battle of Waterloo, he had bet against the French victory and invested in British securities.
By the time he retired from the Exchange at the age of forty-three, his fortune was estimated at about £600,000.
He then purchased and moved to Gatcombe Park, an estate in Gloucestershire (now owned and lived in by Princess Anne, the Princess Royal).
Ricardo had become interested in economics after reading Adam Smith's The Wealth of Nations in 1799 on a vacation to the English resort of Bath.
This was Ricardo's first contact with economics.
He had written his first economics article at age thirty-seven and within another ten years will reach the height of his fame when he takes a seat in the House of Commons, representing Portarlington, an Irish rotten borough.
He will hold the seat, which had initially been made available to him by his friend Richard "Conversation" Sharp, until his death in 1823.
Ricardo is a close friend of James Mill, who has encouraged him in his political ambitions and writings about economics.
Other notable friends include Jeremy Bentham and Thomas Malthus, with whom Ricardo had had a considerable debate (in correspondence) over such things as the role of landowners in a society.
He also is a member of London's intellectuals, later becoming a member of Malthus' Political Economy Club, and a member of the King of Clubs.
