David Ricardo

Non-discretionary money creation.

• David Ricardo believed that the general price level was closely related to the changes in the quantity of money or credit.

• He favored gold exchange standard.

• He believed the central bank should have no discretionary power

Law of Diminishing Returns

• This law was developed by both Malthus and Ricardo.

• Ricardo’s main thesis was that the scarcity of land leads to lower economic growth.

As the labor force increases, it necessitates more land to cultivate, and this leads to less and less fertile land put into use.

James Mill & Robert Torrens

Some historians believed that it was ____________, father of John Stuart Mill and _____________ who discovered the law of comparative advantage.

Opposed

Ricardo – was ___________ to Corn law

In favor

Malthus – was _________ of the Corn Law

Theory of Comparative Advantage

It explains how countries (or individuals, firms, regions) can benefit from specializing in producing goods or services where they have the lowest opportunity cost, even if they are less efficient overall compared to others.

Iron law of wages

• Given a fixed wage fund (which is actually the corn that is the leftover from consumption), a low population will increase the wage rate.

• As the population increases, it necessitates more food which means more but less fertile land will be cultivated.

Subsistence level

According to Ricardo’s fatalistic system, wages tend to ______________, profits decline in the long run but the landlords keep adding to their share of unjust returns.

Labor theory of value

Price was generally determined by the costs ( indicated by the supply) rather than utility (indicated by demand).

Rent Seeking

Refers to the excessive gains (or profits) obtained by a firm through the use of political influence or lobbying in excess of the competitive price.

Gordon Tullock

Rent Seeking – a term invented by

______________ , one of the creators of

the public choice school.

Ricardian Equivalence Theorem

Explains that it does not matter how the government funds new expenditures, whether from taxes, borrowing or printing money.

Robert Barro

Ricardian Equivalence Theorem - popularized by ______________