Ricardo on Machinery: A Textual Analysis

Modern production theory (Kurz and Salvadori, 1995) is utilized to provide a textual analysis of the famous chapter "On Machinery" added by Ricardo in the third edition of his Principles and to reconstruct the examples that are reported there. Two sets of assumptions that rationalize the basic example presented by Ricardo are identified: a) the innovation concerns a non-basic commodity; b) the innovation concerns an agricultural commodity and it does not change the technology applied on the marginal land, which is still marginal after the innovation. Ricardo was aware of these two facts and he seems to have used the latter of the two in his initial example. In effect, the example holds perfectly well if it is assumed that the new machine is specific to a quality of land that is marginal neither in the pre-innovation nor in the post-innovation economy. When the innovation is introduced in the production of an industrial commodity (cloth) that is used by the workers, as in the second example discussed by Ricardo, the rate of profits, and therefore the rate of growth, cannot be the same in the pre-innovation and in the post-innovation economy, unless the innovation is introduced in a switch-point between the technique employed prior to the innovation and that used after the innovation. This is too strong an assumption and can be of some interest only if it provides information about events that occur in the vicinity of a switch point. This “continuity” assumption is what Ricardo seems to have used as the basis for discussion in his second example.