Ricardo’s Theory of Distribution

Ricardos contribution in his theory of distribution Ricardo sought-after(a) to show how changes in distribution affect production and contended that as the thriftiness grows, postulate rises which leads to low profits and deters economic growth. Ricardos theory of distribution has been in short enunciated as follows (1) The demand for food determines the margin of cultivation (2) this margin determines rent Ricardo defined rent as payment for the original and indestructible powers of the grime.He identified rent as the margin of cultivation (i. e. When more dry land was taken to cultivation), but rent also arises because of diminishing returns of the land of the said(prenominal) quality (i. e. on the intensive margin). (3) the amount necessary to maintain the seafarer determines contend Increased agricultural production leads to higher money meshs but the same real wages. Ricardo assumed, via the population principle, that wage rates would be at subsistence levels in the long run.On the other hand, higher nominal wage rates and increasing aggregate rents place a two-way urge on on profits. Although under competition profits are the same for all(a) firms in a given industry, the inevitable tendency of profits is to spill as output increases. Eventually a minimum profit is reached at which additional capital accumulation and new investment ceases. (4) the difference amidst the amount produced by a given quantity of labour at the margin and the wages of that labour determines profit. Ricardo recognized that there is no circular of value, since any measure chosen varies with fluctuations in wages and profit rates. Moreover, he feels that the rising of rents will push profits down until there is no more profit, which probably might be the end of capitalism in his opinion. These theorems are too absolutely stated, and require much modification to suit them to real life.