On the Principles of Political Economy and Taxation

David Ricardo published this in 1817 and it established the deductive method in economics: state assumptions, reason rigorously from them, and derive conclusions without regard to whether they are comfortable. The book is difficult, compressed and organised badly, and it dominated economic thought for the following half century.

The two arguments everyone knows are comparative advantage and differential rent. Comparative advantage, illustrated with English cloth and Portuguese wine, shows that mutually beneficial trade arises from differences in relative production costs, so that a country less efficient at producing everything still gains from specialising in what it produces least inefficiently. Differential rent explains rent as the surplus arising from differences in land fertility: as population grows, less fertile land is cultivated, the price of corn rises to cover the cost on the worst land in use, and owners of better land collect the difference. Ricardo used this to argue against the Corn Laws, since protection raised food prices, raised rents, raised the wages manufacturers had to pay, and reduced profits and accumulation.

The book also contains the labour theory of value that Ricardo held in a qualified form and that Marx developed, the analysis of the effects of taxation on different classes, the argument later formalised as Ricardian equivalence about the equivalence of debt and tax finance, and a chapter added in the third edition conceding that machinery can reduce the demand for labour. Ricardo's system was superseded by marginalism in the 1870s, and his value theory is not used. Comparative advantage remains the foundation of trade theory, and his method of reasoning from explicit assumptions defined the discipline.