The formation of Ricardo's early theory of profits: A reconstruction based on Smith, Malthus and Horner

David Ricardo's "Essay on Profits'' (1815) presents an original theory of profit determination, based on the concept of ''surplus produce" in agriculture, i.e. the excess of food produced on a piece of land over the food consumed by the labourers employed - as interpreted by Sraffa. (This interpretation is discussed vis-'a-vis the critiques made by Hollander, Rankin, Peach and Facarello.) Ricardo's ''surplus produce" theory of profits is here traced to Smith's theory of rent of land, which had explained rent on the basis of the same concept. It is shown how Smith's theories of wages and rent were developed by Malthus into a theory of the expansion of food production, subject to diminishing physical returns, and under the condition that a given rate of profits must be paid to the farmer. Then it is shown how these ''inputs" from Smith and Malthus were transformed by Ricardo into a theory of the expansion of food production entailing a falling rate of profits. The contribution of Horner to Ricardo's formulation is also presented