Demand Conditions and the Interpretation of Ricardo

Abstract

Kenneth J. Arrow's recent article on Ricardian theory (Arrow 1991) represents the occasion for a renewed discussion of the basic building blocks of the classics' analytical scheme and of the role of demand conditions in this context. Arrow's argument pivots around two ideas: that Ricardo's theory is built without any reference to demand, and that the role of demand can be conceived of only within the logical context of neoclassical demand functions, which are absent in Ricardo, thus making his theoretical scheme irremediably weak. These ideas form the basis of a drastically dichotomized representation on the part of Arrow of current interpretations of Ricardo. On the one hand are the neoclassical-type views, epitomized by his own position, with their emphasis on the allocation problem; on the other hand are the purely cost-oriented neo-Ricardian interpretations, with their strongly Marxist ideological bias.