Ricardo and Malthus

The theory of economics throughout the ages

DAVID RICARDO (1772-1823)
Ricardo was the second great economist, who also was known for his great financial acumen. He made a fortune in stocks when he was young, then became an economist despite the fact that he had not attended college. In 1817 he published The Principles of Political Economy and Taxation. It put forth his two major theories.

(1) The Ricardo Effect was the theory that when wages are higher, capital-intensive production is favored over labor-intensive production. What does this mean? Since businesses have to pay more for their workers, they're going to concentrate more on investing in new factories and new materials (capital).
(2) The theory of comparative advantage, which is the fundamental idea behind the economics of international trade. It says that if each nation produces the goods that they can make most efficiently (in other words, they have the required natural resources, the right level of technology, enough skilled laborers, etc. to produce those goods), all nations will benefit in the end, by trading for the goods produced by other nations. In other words, a nation shouldn't try to produce everything it needs; it should do what it does best, and count on others to do what they do best. In the end everyone is happy.

Ricardo had another, less optimistic theory, although in many ways he agreed with Adam Smith. He said that population keeps expanding, eventually there won't be enough food to go around, and economic growth will stop. This was similar to the ideas of Thomas Malthus. Together they led to economics being called "the dismal science."

Thomas Malthus
Malthus is one of history's great pessimists. He said that population will always increase, and will keep increasing faster (an exponential increase). He said that, on the other hand, food supply can only increase to a certain point, due to the amount of land available and other factors. So eventually people will starve, and hunger will persist. Still, he said that humanity would not go extinct from lack of food, because of periodic catastrophes, wars, and other problems.
Malthus's exponentially increasing population model is outdated as a mathematical model. It's been replaced by the slightly more sophisticated logistic model, where population increases quickly only up to a certain point, then the increase slows down, and eventually the population remains roughly the same (the carrying capacity of the environment). Even more sophisticated population models take into account competition and cooperation. The field of mathematical biology has grown much more modern.
Does this mean Malthus's ideas are totally irrelevant? No. Not at all. The fact remains that the world population keeps increasing, and will keep increasing. There are overpopulated nations, and there are more overpopulated areas each year. There just isn't enough food to provide for everyone. This remains a serious problem, and will grow even more serious. What is the solution? There is no easy answer. Government programs to aid developing, third world nations are a start. The question of the world hunger problem will be an important one for some time to come.