Ricardo gave labor an important position when analyzing and discussing the theory of comparative advantage. He pointed out at the beginning of Principles of Political Economy and Taxation that "the value of a commodity, or the quantity of any other commodity exchanged with it, depends on the relative amount of labor necessary to produce this commodity." Furthermore, like Smith, he divided value into "use value" and "exchange value", pointing out that "usefulness is not the standard to measure exchange value" and "the exchange value of commodities and the law that determines the exchange value of commodities, that is, the law that determines how much this commodity must pay in exchange for other commodities, depends entirely on the relative amount of labor paid on these commodities".
The interests of all parties in international trade depend entirely on the exchange value of various commodities in the international market, that is, the relative price level. In Ricardo's view, the free flow of various factors of production, such as capital and labor, among regions and industries in a country is the fundamental reason for the equalization of profit rates. The flow of factors between countries will inevitably be interrupted or even completely stopped for various reasons. From this, Ricardo concluded that it is the international illiquidity of this factor of production that determines that "the law governing the relative value of a country's goods cannot govern the relative value of goods exchanged between two or more countries". Just like "how much wine Portugal uses in exchange for British wool is not determined by the amount of labor used in their respective production." In other words, various factors of production do not flow at all in the world, which interrupts the process of equalization of international profit rate, thus making a country maintain a relatively stable comparative advantage position in the production of a certain commodity.
The relative value of the same commodity in different countries is determined for many reasons, which leaves room for countries to participate in international trade and gain trade benefits. However, the premise here must be that all countries can determine their own advantages over other countries, that is, determine their respective comparative advantages. Ricardo, like Smith, adopted the method of extending individual economic behavior to national economic behavior to analyze and demonstrate his so-called comparative advantage and trade model based on comparative advantage.
In Ricardo's view, under the condition that the exchange value of goods is determined by the amount of labor consumed in production, everyone will devote himself to producing goods with relatively low labor costs for himself. For example, he said, "If two people both produce shoes and hats, one of them has an advantage over the other in the production of both commodities, but he is only ahead of his competitor 1/5 or 20% in the production of hats and 1/3 or 33% in the production of shoes; Then, isn't it beneficial for both of us that this superior person specializes in shoes and that inferior person specializes in hats? "
Since the illiquidity of international factors of production interrupts the process of profit equalization among countries, and since each country may have "a certain product with advantages" for various reasons, and "this advantage is considerable", then "all countries will allocate their labor resources more rationally and produce this product with advantages" and "all countries will gain more benefits by exchanging it with each other".
On the contrary to Smith, Ricardo emphasized the differences between the two countries in the production of two commodities, as well as the trade opportunities and benefits brought by them. Because Portugal has a greater advantage in wine production (Portugal's wine production cost is 2/3 of that of Britain, and woolen cloth production cost is 4/5 of that of Britain), while Britain has a lesser disadvantage in woolen cloth production (British woolen cloth production cost is 1. 1 times that of Portugal, and wine production cost is 1.5 times that of Portugal). Just like two craftsmen who make shoes and hats, as long as Portugal is committed to producing wine and Britain is committed to producing woolen cloth and then exchanging them, both countries can gain trade benefits.
Therefore, the basic principle of comparative advantage theory is that "two advantages should be chosen and two disadvantages should be given the least weight". It is such a principle that wine should be produced in France or Portugal, corn should be produced in the United States or Poland, and machinery and other commodities should be produced in Britain.
Comparative cost theory
When Ricardo just started to enter the field of economics, Britain was in full swing to formulate the corn laws to restrict grain trade. Ricardo advocated free trade, but corn laws finally passed. This prompted Ricardo to think more deeply about trade issues and refute the absurdity of trade restrictions in theory.
His international trade theory can be called "comparative cost theory" or "comparative cost method". He imitated Adam Smith's theory of individual division of labor to analyze the benefits of trade between the two countries. It takes 50 working days in Britain and 25 working days in Portugal to customize a unit of cloth. It takes 200 working days for Britain to make a unit of wine, while Portugal only needs 25. It can be seen that the cost of brewing and cloth in Portugal is absolutely lower than that in Britain, that is to say, they are in an absolute advantage. However, Portugal has a greater advantage in wine production. Portugal's brewing cost is relatively low and it is in a comparative advantage, while its cloth making cost is relatively high and it is in a comparative disadvantage. The cost of clothing in Britain is relatively low and it is in a comparative advantage. In this case, Britain gave up producing wine with comparative disadvantage and specialized in producing cloth with comparative advantage. With this division of labor, the two countries together can not only produce more wine and cloth, but also Britain can exchange cloth for more wine and Portugal can exchange wine for more cloth. Both countries benefit from international division of labor and international exchanges.
This theory provides a solid theoretical foundation for free trade. Ricardo believes that the benefits of international division of labor and international exchange can be realized most effectively only if the government does not interfere in foreign trade and implements free trade. Under the system of complete commercial freedom, every country puts its capital and labor into the most beneficial use for itself. Therefore, he is a firm free trader. Ricardo's economic theory is based on labor theory of value, which originated from Smith, but has undergone some changes.
The core of Ricardo's value theory is the following sentence: "The value of a commodity ... depends on the relative labor necessary for its production." According to this theory, he believes that the value of labor (wages) is determined by the means of production that are usually necessary to maintain the lives of workers and continue their descendants in a certain society, while profits are determined by wages. In all these analyses, we can't see the role of supply and demand, and everything is decided by some mysterious factor.
However, the clever Ricardo has long realized the inherent contradiction of this value theory. He himself once muttered, "I can't overcome the difficulty: I have stored wine in the cellar for three or four years, or I spent less than 2 shillings at first, but later it was worth 65,438+000 pounds." Later, people used water and diamonds to summarize the "value paradox" faced by Ricardo and other classical economists: water is extremely important to people and is the pillar of life, but under normal circumstances, the price is very low; Diamonds, on the other hand, are luxury goods and useless for people's survival. Usually, the price is very high. Why?
Ricardo has never been able to solve this problem. It was in the1870s that the rise of marginalism enabled economists to answer this question. The answer is simple: value can only come from the subjective evaluation of individual consumers. I may have spent 30 years studying a thing, but when it comes to the market, no one cares, so it has no economic value, no matter how much labor I put in. The value of goods and services is the result of consumers' evaluation, while the relative prices of goods and services are determined by consumers' evaluation of these products and the level and intensity of their desires. Ricardo believes that the increase of real wages will lead to the decrease of real profits, because the gross profit of commodity sales can be divided into two parts: wages and net profit. In "On Profit", he wrote: "Profit depends on wages, wages depend on the price of daily necessities, and the price of daily necessities depends on the price of food."
In addition, an idea related to Ricardo is "Ricardo equivalence": under certain circumstances, the choice of how the government should pay its expenses (that is, taxes, issuing bonds or fiscal deficits) has no impact on the economy. Ironically, despite its reputation, he himself doesn't seem to believe in this theory. tax source
Ricardo's main contribution to political economy lies in his labor theory of value. He insists on the principle that labor time determines the value of goods, and thinks that labor is the only source to create value. Ricardo, according to his own labor theory of value, thinks that tax comes from the value of labor products, and tax is the part of a country's land and labor products that is dominated by the government. In the end, it is always paid by the capital or income of the country. In other words, Ricardo summed up taxes as coming from capital and income. If the tax collection makes people increase production or reduce consumption, then the tax comes from income; If people don't increase production or reduce consumption, taxes will come from capital.
Ricardo believes that taxation is a reduction of accumulation, both in terms of income and capital. All taxes tend to reduce accumulation capacity. Taxes either fall on capital or income. If it encroaches on capital, there will inevitably be corresponding reactions; Reducing a fund, the country's productive labor always depends on the size of the fund. If it falls on income, it will definitely reduce accumulation. Therefore, Ricardo believes that when the state increases taxes, unless people can increase their capital and income in proportion, their perennial enjoyment will inevitably decrease. The government's policy should be not to levy taxes that inevitably fall on capital, because such taxes will damage the funds that maintain the labor force, thus reducing the country's future production.
principle of law-based taxation
Ricardo did not systematically and comprehensively analyze the tax principle like Adam Smith, but he also reflected his tax principle thought in some discussions and analysis, mainly including tax fairness and the influence of tax on production.
Ricardo believes that all social income should be taxed, and people should pay taxes according to their own financial resources; As long as the tax burden of the government is reasonable, it doesn't matter which income it falls on. It doesn't matter much whether the tax is added to profits, agricultural products or industrial products as long as it is not unevenly pressed on the people engaged in accumulation and savings. In order to collect taxes fairly, a tax system consisting of payroll tax, profit tax and agricultural products tax should be established. Like Adam Smith, Ricardo also agreed that government fiscal expenditure is unproductive; Government tax revenue is used for government expenditure, so it is also unproductive; Taxation has the common problem of hindering production and farming, which brings a burden to production. Any form of taxation is just a matter of choice between abuse and abuse. If it does not affect profits or other sources, it will definitely affect expenditures. Therefore, Ricardo believes that the best financial plan is to cut expenses, and the best tax is the tax with the least tax.
Tax impact
(1) The influence of taxation on capitalist production. Ricardo believes that taxes come from either capital or income, so generally speaking, taxes are not conducive to the development of capitalist production. He said: "If there were no taxes, the capital would increase much more. All taxes tend to reduce accumulation capacity. Taxes either fall on capital or income. If it encroaches on capital, it will inevitably reduce a fund accordingly, and the amount of productive labor of the country always depends on the size of this fund. If it falls on income, it will definitely reduce the accumulation, or force taxpayers to reduce the unproductive consumption of previous necessities and luxury goods accordingly, thus saving taxes. However, the great harm of taxation lies not in the choice of taxation purpose, but in the overall effect. " Ricardo further pointed out that taxes from capital are more harmful to production than taxes from income. If capital is taxed, the funds that people originally decided to use for productive consumption will be affected. Ricardo also pointed out that taxation will lead to the decline of profit rate, which will lead to the tendency of capital transfer. He said: "If the grain price cannot be raised according to the total tax revenue, the agricultural profit will be lower than the general profit level, and the capital will find a more favorable use." He also believes that if taxes are not universal, some taxes should be levied on certain industries. Not taxing other industries will also cause the transfer of capital. In his view, in order to reduce the adverse impact of taxation on production, it is necessary to avoid taxing capital and try to levy the same income tax and the least disadvantaged luxury goods tax.
(2) The impact of taxation on prices. Ricardo believes that taxes often make commodity prices tend to rise. Any tax levied on agricultural operators, whether it is land tax, tithe tax or product tax, will increase production costs, which will also increase the prices of agricultural products. Every new tax will become a new production burden and raise the natural price. Ricardo also believes that taxes can change the original price ratio relationship between commodities. We see that the direct tax on grain and agricultural products must increase the prices of all commodities according to the proportion of agricultural products added to commodities, thus destroying the original natural relationship between commodities.
(3) Other impacts of taxation on the economy. Ricardo believes that tax can affect the supply and demand of products by changing the profit level; Taxation can also turn personal income into government income and guide resource allocation by changing national income input; Taxation can reduce the actual demand of labor force by reducing capital, thus reducing the employment opportunities of workers; Taxation can develop foreign trade and promote domestic economic development through export tax rebate and import tax.
analyse
Ricardo further analyzed various taxes on the basis of analyzing tax sources, and the analysis of various taxes actually focused on the issue of tax transfer.
About land rent tax. According to Ricardo's differential land rent theory, land rent tax only affects land rent, and all the tax burden falls on the landlord and cannot be passed on to any consumer class; However, under certain conditions, land rent tax will also cause the price of agricultural products to rise, and the tax burden will be borne by consumers. It is quite certain that all taxes levied on real land rent should be borne by landlords, but for landlords, the taxes levied on people's remuneration for using their capital invested in farms will fall on consumers of agricultural products in developed countries.
About profits tax. Ricardo believes that taxing capital profits will lead to an increase in the prices of goods produced. For example, taxing the profits of hat makers will increase the price of hats. Taxing farmers' profits will increase food prices; Taxing the profits of wool weavers will raise the price of wool. For capitalists, if the tax burden is not passed on with the increase of commodity prices after taxation, the capitalists who produce products will not get average profits. Ricardo further analyzed that if capital profits are taxed and the prices of all commodities rise in proportion to the tax, then shareholders will be affected, even though his dividends are not taxed. However, if all goods fall back to their previous prices due to changes in the value of money, shareholders do not have to pay taxes at all.
About the payroll tax. Taxing wages will increase wages and lead to a decrease in the rate of return on capital. Ricardo pointed out that taxing necessities is different from taxing wages. Taxing necessities is bound to increase the price of necessities, but the wage tax will not. The tax on necessities is partly a profit tax, partly a tax on wealthy consumers, and the payroll tax is all a profit tax. Ricardo believes that the effect of payroll tax is to increase wages, and the amount of increase is at least equal to the tax amount. Even if the employer didn't pay the tax directly, he paid it in the end.
About agricultural products tax. Ricardo believes that any tax levied on agricultural operators, whether it is land tax, tithe tax or product tax, will increase production costs, thus raising the prices of agricultural products. The agricultural product tax will not be borne by the landlord, because the tax cannot be deducted from the land rent; Nor is it borne by farmers' profits, because there is no reason to ask farmers to engage in such industries with lower profits when other industries have higher profits. In this way, Ricardo concluded that the agricultural product tax will not be paid by landlords or farmers, but only by consumers with rising prices.