Book Review: Analysis of Ricardo's Political Economy and Taxation

This report provides a comprehensive book review of David Ricardo's 'Principles of Political Economy and Taxation.' It delves into the core concepts of the book, including the functions of rent, profit, and wage in relation to land, capital, and labor. The review highlights Ricardo's analysis of distribution strategies, his critiques of Adam Smith and Thomas Malthus, and his exploration of comparative advantage in international trade. The report discusses the evolution of Ricardo's ideas, the influence of technology and resource availability on price determination, and the importance of labor and capital in economic growth. It also examines Ricardo's views on taxation, income inequality, and the rent theory, concluding with a discussion of how efficient resource use can improve production and employment conditions. The review emphasizes Ricardo's contributions to economic thought, particularly his comparative advantage theory, which helps economies identify their strengths in global trade.

Running head: BOOK REVIEW
Book Review
Name of the Student
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Author Note

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Table of Contents
Introduction......................................................................................................................................4
Discussion........................................................................................................................................4
Conclusion.......................................................................................................................................4
Reference list...................................................................................................................................4

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Introduction
David Ricardo, the author of “Principles of Political Economy and Taxation’, is a
renowned classical economist. The central idea of the book is to discuss the functions of rent,
profit and wage in respect of land, capital and labor respectively. The book highlights some
major economic concerns related to the distribution of the limited economic resources to
different classes of the society. According to the author, distribution strategy is a vital issue
under the Political Economy. In this book, the author attains to fill the satisfactory information
gap on Adam Smith’s distribution theory for circular reasoning. Further, Ricardo criticizes the
economic theory of Thomas Malthus on the ‘Nature and Progress of Rent’ (Dixon 2008). The
author argues that it is difficult to determine the influential impacts of the tax system on the
communities. Meanwhile, the writer illustrates how adoption of machinery derives the country’s
comparative advantageous position in the international trade market lowering the production cost
for particular product.
Discussion
The first edition of the book published by John Murray publishes in 1817 following the
second and third edition in 1821. All the three different editions are comprised of Ricardo’s
comprehensive studies on the Political Economics and Taxation. The value of a commodity
depends on the utility and exchange value, as stated by Adam Smith. It is observed that the
commodity, such as, Gold owns the highest exchange value despite having little value in use. In
According to Smith, the absolute cost of the commodity is the key determining factor for the
exchangeable value. ‘What everything really cots to the man is the real price of good ’, as said
by Adam Smith (Gonner 1890). On the contrary, Ricardo argues that relative price should be
followed to decide the exchangeable value of the commodity. The relative price is the ratio of the

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two commodity prices. Suppose, ratio of wage and rent will be taken as a relative price when
labor and land are only the economic resources used for the production process. The economist
observes that the availability of the resources and use of the technology are the key parameters to
measure the price.
In this regard, Malthus illustrates that price solely depends on the amount of
accumulated labor and capital required for the production. The producers are encouraged to
produce more goods when the price gets enhanced due to the augmented demand (Hollander
1911). In this way, the producers get an opportunity to earn a significant amount of profit from
the production process. Nonetheless, Ricardo claims that the producers will be encouraged to
intensify the production if the production process consumes the goods which are abundantly
available for the production process. The abundance of the raw materials is the key determining
factor for the producers to continue the production process. This further helps the producers to
acquire the comparative advantageous position in the market. For example, the corn production
requires relatively more labor than capital (Fetter 1969). Therefore, the labor-intensive
technology should be implemented in support of intensifying the corn production. The expert
considers that opportunity cost is the integral part of the comparative advantage. For instance, a
labor can produce two bread in one hour, whereas, he can manufacture one hammer tool in one
hour. The statement clearly explains that bread production is labor-intensive as compared to the
hammer. Hence, the producer must adopt the labor intensive technology in case of bread
production. ‘That this really the foundation of the exchangeable value of all things, excepting
those cannot be increased by human industry’, says Ricardo (Brue and Grant 2012). The
development of the labor needs to be exercised under the doctrine of the political economy. The

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human welfare should be leveled as the utmost importance in order to support the sustainable
economic growth.
Moreover, Smith states that labor should receive the wage as proportional to his
production capacity. The labor quantity should be equal to the purchasing cost of the commodity.
However, the value of the economic resources is subject to certain conditions. The economic
resources have been observed to get influenced by sudden economic conditions. For example,
skilled employees invariably own better production capability in relation to the unskilled labors.
Therefore, skilled labors earn more wage than unskilled workers, which in turn, empowers the
skilled labors with more purchasing power (Hutchison 1952). On the other hand, the producers
having greater capital will be able to acquire more revenue than the small size producers.
Altogether the resource concentration will not be done in a familiar way. Considering the fact, a
regulation needs to be imposed to make the resource distribution fair for the social entities.
Ricardo suggests that tax imposition can assure the fair resource allocation system for the
economy. The book illustrates that progressive tax system must be constructed as to reduce the
disparity in the resource allocation system (Bharadwaj 1983). The progressive tax system refers
to the situation when high wage earners are proposed to pay high tax in comparison with the low
wage earners. The tax is the limiting factor for in terms of controlling the expenditure amount of
the consumers. This implies that consumer would alter his consumption level as tax directly
influences the disposable income.
From Smith’s point of view, a land-tax must be complied by following the four maxims.
First, the government intervention is required to determine the proportional tax rate. Second, the
proportional tax rate would be taken as a permanent but not as an arbitrary. Third, levied tax
needs to be paid within a fixed time period. The tax would play as key contributory role in the

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enhancement of the economic growth. Fourth and final, the tax would be treated as an integral
part of the public treasury of the state. However, Smith has been failed to draw an effective tax
structure which could lower income inequality across the economy. Earlier, capitalist economy
preferred to follow regressive tax system which benefits the high- income group of people than
the low-income group of people. The economic welfare cannot be enhanced by the entire section
of the people in the economy (Fetter 1969). Further, the tax structure gradually stops working as
mass section of people starts avoiding the tax payment. In this context, Ricardo has suggested a
new tax approach to assuage the income inequality among the different sections of the people.
The author proposes that higher wage earners should be asked to give greater tax amount as
compared to the low wage earners. This stands for progressive income tax structure.
Meanwhile, the dispute regarding the corn laws in England has developed the rent theory
of Ricardo. The analysis of rent theory highlights the surplus aspect of the economy. The surplus
is related to the quality and productivity of the land. Suppose there is a corn producer in the
domestic economy. The corn production exceeds the local corn demand and generates surplus
amount in the market. In this regard, Ricardo proposes the corn producer to involve into the trade
business so that surplus amount does not get wastage (Scazzieri 1988). The producer should start
the trade-off business for the excess corn. This results in the improvement of the producer’s
revenue and the aggregate supply of corn. This trade aspect is considered as a fundamental part
of the international trade environment. It transfers the return from land to the return of capital.
Before 1880s, the use of land for the commercial purpose is not a common phenomenon. The
producers were not aware of the margin of the intensive cultivation. Successively, economists
like Petty has realized that land can yield higher return through lowering cost of production.
According to Petty, the land should be cultivated in such a way which would provide the higher

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return to the landowners. In this way, the limited economic resources would be used in the most
possible efficient way. Henceforth, marginal return of the economic resources would be optimum
in the economy.
Conclusion
Ricardo observes that efficient use of economic resources not only improves the average
production also advances the employment condition. This sort of satisfactory information has not
been discussed before by great economists like, Adam Smith, Karl Marx, Turgot, Stuart and
Thomas Malthus. It has been noticed that great number of employees get employed when
cumulative production level intensifies. More people are required to be employed as to meet the
emerging production. This leads to the improvement of the real wage of the economy. The
intrinsic value of the good is determined through the cumulative action of the existing labor force
and productivity of the land. The intrinsic value is the key determining factor for the market
price. The return of the land or capital solely depends on the tradeoff actions between the
producers and purchasers. Mismanagement in the land distribution and allocation of the
employees for the production process impedes the optimum production capability. This
obstruction has raised the importance of the development of Ricardo’s comparative advantage
theory. This theory helps the economy in identifying its strong position in the trade structure in
respect of its global competitors.

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Reference list
Bharadwaj, K., 1983. Ricardian theory and Ricardianism. Contributions to political
economy, 2(1), pp.49-77.
Brue, S. and Grant, R., 2012. The evolution of economic thought. Cengage learning.
Dixon, W., 2008. Ricardo: economic thought and social order. Journal of the history of
economic thought, 30(2), pp.235-253.
Fetter, F.W., 1969. The rise and decline of Ricardian economics. History of Political
Economy, 1(1), pp.67-84.
Gonner, E.C.K., 1890. Ricardo and his critics. The Quarterly Journal of Economics, 4(3),
pp.276-290.
Hollander, J.H., 1911. The work and influence of Ricardo. The American Economic
Review, 1(2), pp.71-84.
Hutchison, T.W., 1952. Some questions about Ricardo. Economica, 19(76), pp.415-432.
Scazzieri, R., 1988. The legacy of Ricardo Giovanni A. Caravale, Ed. Oxford: Blackwell, 1985,
325 pp. Atlantic Economic Journal, 16(4), pp.79-87.