The Ricardo Effect: Its Meaning and Validity

This paper is concerned with the meaning and validity of the 'Ricardo effect'. It is shown that the machinery substitution effect contemplated by David Ricardo (a) is not caused by a rise in the real wage rate, (b) is independent of the so-called 'price effect', and (c) presuppos...

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Bibliographic Details
Published inEconomica (London) Vol. 70; no. 277; pp. 143 - 158
Main Author Gehrke, Christian
Format Journal Article
LanguageEnglish
Published London Blackwell Publishing 01.02.2003
London School of Economics and Political Science
Blackwell Publishing Ltd
Subjects
Commodities
David Ricardo
Economic theory
Economics
Fixed capital
Hayek, Friedrich A
Labor
Labor economics
Machinery
Prices
Production capital
Real wages
Ricardo, David (1772-1823)
Studies
Substitution effect
Validity
Wage rate
Wage rates
Wages
Wages & salaries
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Summary:This paper is concerned with the meaning and validity of the 'Ricardo effect'. It is shown that the machinery substitution effect contemplated by David Ricardo (a) is not caused by a rise in the real wage rate, (b) is independent of the so-called 'price effect', and (c) presupposes very special assumptions about the available set of production methods. The paper also investigates whether Ricardo's machinery substitution argument anticipates the principle of factor substitution with regard to capital and labour in marginalist theory.
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ArticleID:ECCA275
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0013-0427
1468-0335
DOI:10.1111/1468-0335.t01-1-00275