On the Definitions of Wealth
[A definition of wealth is desirable, though it may not be easy to give one not liable to some objection.
The liberty of a writer to define his terms as he pleases, provided he always uses them in the sense proposed, may be doubted, as an inquiry may be rendered futile by an inadequate or unusual definition.
The comparative merits of the systems of the Economists, and of Adam Smith, depend mainly upon their different definitions of wealth.
The Economists have confined the term wealth within too narrow limits.
Lord Lauderdale and other writers have given definitions which extend it too far.]
If we wish to attain any thing like precision in our inquiries, when we treat of wealth, | we must narrow the field of inquiry, and draw some line, which will leave us only those objects, the increase or decrease of which is capable of being estimated with more accuracy.
The line, which it seems most natural to draw, is that which separates material from immaterial objects, or those which are capable of accumulation and definite valuation, from those which rarely admit of these processes, and never in such a degree as to afford useful practical conclusions.
Adam Smith has no where given a very regular and formal definition of wealth; but that the meaning which he attaches to the term is confined to material objects, is, throughout his work, sufficiently manifest. His prevailing description of wealth may be said to be, “the annual produce of land and labour.” The objections to it, as a definition, are, that it refers to the sources of wealth before we are told what wealth is, and that it is besides not sufficiently discriminate, as it would include all the useless products of the earth, as well as those which are appropriated and enjoyed by man.
David Ricardo (1772-1823) was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill.
Ricardo’s father, a successful stockbroker, introduced him to the Stock Exchange at the formative age of fourteen. During his career in finance, he amassed a personal fortune, which allowed him to retire at the age of forty-two. Thereafter, he pursued a political career and further developed his economic ideas and policy proposals. A man of very little formal education, Ricardo arguably became, with the exception of Adam Smith, the most influential political economist of all time.
Ricardo was the first economist to make extensive use of deductive reasoning and arithmetical models to illustrate the anticipated reactions to juxtaposed market forces and responsive human action. His modes of analysis have become identified with economics as an academic discipline.
Like Smith, Ricardo believed that minimal government intervention best served an economy. His contributions to economics are numerous and include the theory of “hard money” to hedge inflation, the law of diminishing returns, developed along with his close friend the classical economist T. R. Malthus, and the labor theory of value.
One of Ricardo’s most significant contributions to economics is the law of comparative advantage as applied to international commerce, which grew out of Adam Smith’s division of labor and has become the central argument for free trade and open markets. It implies that countries best serve themselves when they trade with other countries abiding by their respective scales of efficiency. Besides being the most efficient method of international commerce, the comparative-advantage mode of trade also encourages international stability through multilateral business interests and global interdependencies. As Frédéric Bastiat, the French journalist and politician, wrote, “If goods do not cross borders, armies will.”
Throughout the years, several economists have elaborated on fundamental Ricardo themes and developed compelling theorems. Using Ricardo’s assertions about the interrelationships among capital, labor, output, and investment, the Nobel laureate F. A. Hayek posed the Ricardo effect, a retort to John Maynard Keynes’s accelerator principle. Robert Barro of Harvard University used Ricardo’s equivalence theorem to argue that the distinction between government taxing its citizens or deficit spending on credit is inconsequential to the long-term aggregate economy. Gordon Tullock, one of the founders of the public choice school, built upon Ricardo’s rent theory to explain his “rent-seeking” phenomenon, which illuminates the inequitable and monopolistic distribution of excessive gains derived through discriminate government subsidies.