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How the world works

David Ricardo

Dividing the work

David Ricardo (England · 1772–1823) — Dividing the work.

How the world worksThe industrial ageDividing the work

What actually happened?

At twenty-one Ricardo married a Quaker, broke with his Jewish parents over it, and started again on the exchange on his own. At twenty-seven, staying in Bath while his wife took the waters, he happened on a copy of Adam Smith's Wealth of Nations and was taken with economics from then on. Ten years passed before he published anything on it: a piece on why the price of gold had risen.

What is given up decides it

Portugal made both cloth and wine with fewer men than England, and he showed it should still make only wine and leave the cloth, because each batch of cloth cost it more wine. Who is better does not decide the division; what each gives up does.

You are faster than your assistant at proposals and spreadsheets. The afternoon on the spreadsheet costs a proposal only you could write.

The newest share lands on poorer ground

The best land is farmed first, and each new field returns less than the last. The price of corn is set by the worst field in use, and the extra the good fields yield becomes the landlord's rent.

Your fifth shop is usually on a worse site than your first, and the average across five hides its loss.

The world in a few numbers

He hardly used real firms in his book, only a few figures: 100 men, 120, 90, 80. Few enough to see at a glance, so the conclusion has nowhere to hide. Schumpeter later called this habit of running from a few assumptions straight to policy the Ricardian vice.

Reduce an argument to three numbers on the whiteboard before the meeting, then ask what the three numbers leave out.

How do I use it today?

List the jobs on your plate. For each, write two columns: how far ahead of the people around me I am; and what I am not doing while I do it. Keep the one where the second column is dearest, and hand one of the rest over this week.

Deep read

Better at Both, and Still Hand One OverKeep the job where your lead is widestPortugal made both cloth and wine with fewer men than England, and he showed it should still leave the cloth to EnglandThe Last Field PloughedThe further you spread, the poorer the ground the next share lands onThe best land is farmed first, each new field is worse, and the price of corn follows the worst one

Read alongside

The Wealth of NationsBoth are about dividing labour. Smith says division makes people more skilled, one step each in the pin factory; Ricardo says that even with no difference in skill, division pays as long as what each gives up differs. One explains where the gain comes from, the other who should take which job. Ronald CoaseBoth ask who should do a job. Coase counts the cost of buying it from outside, so some work belongs inside the firm; Ricardo counts what you give up by doing it yourself, so even work you can do should go to someone else. One looks at the cost of the handover, the other at your own alternatives.

Further

The Wealth of Nations Ronald Coase John Maynard Keynes Thorstein Veblen

Lines to keep

Not who is better, but what each gives up.

Cost the newest share on its own.

A sum in three numbers still leaves things out.