Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray

by Nat Dyer

"I loved this book. Gobbled it up. If you want a sense of where economics might have gone wrong, and how it could right itself - this is an excellent primer." Ed Conway, author of Material World

From the workings of financial markets to our response to the ecological crisis, economic theory shapes the world. But where do these ideas come from?
Ricardo’s Dream tells the fascinating story of David Ricardo, Adam Smith’s only real rival as the ‘founder of economics’: The wealthiest stock trader of his day, Ricardo introduced the study of abstract models to economics. He also developed the theory of trade that underpinned globalization and hides, behind its mathematical façade, a history of power, empire and slavery.
Brimming with fresh ideas and stories, Ricardo’s Dream shows how too many economists, from Ricardo’s day to our own, have turned away from observing the real world and led us astray.

Genres: Economics, Nonfiction, Politics

325 pages, Kindle Edition

Published November 26, 2024

About the author

Nat Dyer is a writer and researcher specialising in global political economy. He is a Fellow of the Schumacher Institute and the Royal Society of Arts. He has worked for Global Witness and for Promoting Economic Pluralism and his stories have been reported on by the BBC, the New York Times and Bloomberg.

Reviews

[David Schwan · Rating 5 out of 5]

At heart is deductive reasoning (top down, developing an idea from first principles), versus inductive reasoning (fact based, drawing laws/principles from facts, bottom up).

Ricardo and other economists talk about an “economic human” which is some kind of ideal person and that economic laws revolve around these people (not mere mortals), yet economics in a sense can be thought of as the sum of all transactions, many of which are not done by a person that understands all about the market, in some ways it is essential (to make profit) to have information the other side is ignorant of.

I remember someone explaining to me that economics need not concern itself with ethics, that due to the size of the market all ethical situations are in essence cancelled out, yet at its heart every transaction has an ethical position; saying that due to shear numbers we can ignore ethics is a highly questionable position.

Pygmalion Syndrome is where an idealized version of the world replaces the actual version. Recent economists have been advocating for changes in the real world so that it better fits their models. In a real sense the Libertarians (Peter Thiel among them) seem to be advocating for a similar change, since their world view seems to be in conflict with reality.

Today many trades in financial markets are made by machines programmed with algorithms. It should be quite clear that any algorithm does not necessarily have all the facts available.

Benoit Mandelbrot found that commodity trading numbers clearly could not be fit with a simple gaussian distribution but rather a Levy distribution which has a long tail. Contemporary economic theory assumes a certain amount of randomness, but not chaotic swings within a system, yet Mandelbrot observed chaotic swings, a good example of facts not fitting those pesky theories.

[Isabel · Rating 5 out of 5]

A brilliant prose blending history, economics and science to give a better picture of how our current system came to be. Would recommend to anyone wanting short deep dive into the influence of power in the current economic system & ideas/ inspiration to shift it.

[Ira · Rating 5 out of 5]

What a fantastic book. If you are interested in the history of political economy, and see economics as a battlefield, with outcomes our lives depend on, this is a great read. Dyer has a gift for sifting through huge and complex theoretical traditions to deliver a lucid, clear and scathing critique of economics as it operates now. It doesn’t present exegeses or close readings, but extrapolates significant elements of different perspectives and contextualises them in the debates their proponents were intervening in. What was a stake for them, and their funders. This presents a diverse picture of political economy and what followed in its wake, economics; with consensus often forced upon debates by outside circumstances and powerful vested interests. Starting from David Ricardo’s main contribution to international trade theory, the idea of comparative advantage, in the first part of the book Dyer examines the circumstances of the 1703 Treaty of Commerce between Portugal and England also known as the Cloth and Wine Treaty, which was taken as exemplary of Ricardo’s theory and the ‘beautiful proof’ of the benefits of unfettered globalization. Dyer digs deep into what disappears from view when using Ricardo’s ‘model’, in this case, state power and its command over resources around the globe. Suddenly from a cloth and wine seemingly simple exchange we are catapulted into the deep waters of the transatlantic slave trade and made to appreciate the huge role of Brazil in rescuing Portugal’s position in what was an unequal exchange by using Brazilian gold to make up for its trade deficit with England. The very gold Isaac Newton minted into coins in the last part of his life. This first part is in itself an amazing story well told, but Nyer carries on, and argues to further alert us to the destructive power of deductive reasoning and an over-reliance on abstract models in economic thinking. He takes us from the 18th century up to the present, showing how Ricardo was criticised time and again for its unrealistic assumptions and obsession with making a circle square, until he was resurrected and used to antagonise Keynes after the second world war, which eventually led to financialization, ending with the last fifty year and neoclassical economics, a chronicle of errors, some knowing, some naïve, and the invasion of physics and maths graduates of Wall Street, exasperating the obliviousness to the relation, or lack thereof, of models to reality. Economics is an engine, not a camera, goes the motto of Milton Friedman and his acolytes, thus sanctioning this principle of unreality straight at the heart of the very one discipline that has more influence on policy making than any other. With Friedman, the explanatory power of models is happily ditched in favour of their predictive powers, yet the fact that predictions hardly ever deliver, and often with dire consequences, is ignored, and the blame goes on the model, the solution being to tweak it rather than ditching the whole deductive approach altogether. In Dyer’s tour the force, examples of bad reasoning abound and the case for an overhaul of the discipline is persuasively made. Dyer has done all economics students a great service here, not only for showing the effects of this pseudoscience, but also by demonstrating that behind many of those thinkers reside a Ricardo, the stockbroker happy in his abstractions, whose self-belief flies in the face of the worse global inequities. It’s hard to do the book justice in a summary, it is comprehensive, relatively fair handed, lucid, but passionate. Well done, Dyer. Shame the Ricardos seem to multiply and keep taking over all positions of power in governments and economies alike. But there’s hope.

[David Sloan · Rating 5 out of 5]

Highly recommended

Excellent overview of the use and limitations of modeling in economics, from the founders to the present. Authoritative and entertaining. Equally useful for the professional and layperson.

[Megan Tee · Rating 4 out of 5]

A book the explains economic history plainly without ever becoming inaccessible. An enjoyable read if you want to figure out what is the core components of the economy, and the economic discourse today

[Chase DeMonte · Rating 5 out of 5]

How did we get here?

Here in 2025, the globalization consensus--favored overwhelmingly by prominent economists throughout the world--is facing its toughest challenge since its inception. This isn't the first time that the authority of modern-day economics has come under fire. The unprecendented intervention by central banks during the COVID-19 pandemic brought with it a barrage of economic experts who predicted any resulting inflation spike to be "transitory." Yet inflation persisted, and incumbents in democratic governments suffered perhaps their worst election results in recorded history in 2024 largely because of it. This echoes how the 2008 financial crisis also blindsided the economic field; famously, Queen Elizabeth II asked the top professors at the London School of Economics "Why did no one see it coming?" shortly after the crash.

Nat Dyer's Ricardo's Dream is an excellent overview of how modern-day economics came to be. Although Adam Smith is widely regarded as the "father of economics," the author effectively argues that David Ricardo is just as deserving of the title. It is Ricardo's overreliance on mathematical models and his oversimplification of human motives that have persisted more in the field than Smith's worldly and philoshphical approach. The book introduces and explains concepts from economic history that are still treasured today, such as Smith's example of a pin factory to explain the benefit of specialized labor, and Ricardo's example of the English cloth and Portuguese wine trade to explain the benefit of free trade through comparative advantage.

It is this comparative advantage example that Dyer takes a closer look at. I don't want to give many of the details away, as I believe it is the most gripping historical narrative in the book, but the reader will certainly leave those chapters with a newfound sense of the complexity of global trade ("complexity" in this sense meaning the politics and global power imbalances that the comparative advantage model fails to account for). The biggest question we should all be asking ourselves, especially as our current "free trade" paradigm comes under fire, is Is free trade really free? Or has our approach to globalization failed to account for differences in global power and influence, and is a more interdisciplinary approach to economics, politics, and international relations needed to help address the global issues of our time?

Dyer has written a very important book here, and he is approachable and easy to understand in his writing. Although far from a comprehensive history of modern economics (as that wasn't the book's aim), the book's argument is clear and leaves the reader better informed of just how dogmatic the supposed "hard science" of economics really is. I'd recommend it to anyone even remotely interested in the story behind our current globalization backlash. It also serves as a wonderful starting point for more reading on the subject.

[Guy Dauncey · Rating 5 out of 5]

Over the past 8 years, I have read some 500 books on economics and economic history. This is one of the best. Ricardo is such a central figure in economics, and Nat Dyer's full expose of the reality behind his work might, I hope, be the nail in the coffin for neoclassical economics, which is doing such damage around the world.

What's more, his book is FUN. It tells stories, and is rich with history. I recommend it highly.

Like most 19th century European thinkers, the economists were in awe of Isaac Newton. They had science envy, coveting its tidy mathematics, laws, and models.

To turn the messiness of human economics into a science they needed a unit of energy equivalent to the atom, and they settled on a hypothetical representative agent - homo economicus - who would always act as a rational utility maximizer in the pursuit of self-interest. In this way, they enshrined selfishness as a scientific law.

In Ricardo’s Dream, the British author Nat Dyer makes the case that it was Ricardo himself who was the originator and role model for homo economicus.

Ricardo was a highly successful stock exchange trader, who earned his wealth by calculating the margins on buys and sells. With his millions, he retired to a huge country mansion in Oxfordshire where he wrote On the Principles of Political Economy and Taxation (1817), creating a fantasy model of the economy in which everyone always operates with perfectly informed rationality, enabling the mechanisms and laws of the economy to operate to perfection, as long as the government did not intervene.

Since his model could not include the complex, messy, and often hidden realities of power, slavery, or mercantile abuse, he just ignored them.

In so doing, he achieved two things that have had a lasting influence.

First, he enabled economists to believe that they were scientists, as long as they stuck to their models and did not get their hands dirty in the real world.

Second, he enabled investors who were pure capital-maximizers to claim that they had the truth of economic science on their side, and thus to oppose all government intervention - except when it was needed to save them.

Among conventional economists, free trade is deemed to be an unquestionable good. If British Columbia can produce the best timber by clearcutting its forests and using the money to buy imported food from Mexico, they argue, that makes sense.

It is David Ricardo who first provided the rationale for trade based on comparative advantage. For anyone who has absorbed his story, Nat Dyer’s brilliant exposé is an essential remediative.

In order to be able to recommend that trade should follow the Newtonian laws of economics, Ricardo obviated any reference to imbalances of power, the British navy’s gunships, or the slavery that underlay so much 18th and 19th century trade – and which, in modern form, continues to this day.

[Eugene A. · Rating 4 out of 5]

The book’s central thesis is that abstract, deductive economics models are not sufficient to understand the economy and make the best informed policy decisions. It is hard to argue with that assertion.

As evidence the author unpacks David Ricardo’s comparative advantage model based upon the trade of English cloth for to Portuguese wine in the 19th century. This is the best part of the book.

Later, Dyer wanders into his own political views and describes the economists failure to assess climate change and other social issues in favor of huge mathematical models which don’t reflect reality. He sprinkles other political views throughout. The book would be much stronger without these distractions. One particularly disconcerting view is the author’s term “raw capitalism.“ Dyer provides no definition but readers are left with the impression that there are undisclosed fatal flaws in capitalism understood by all readers.

The author concludes with one very important argument. Integration of economic, history, and political science thinking and actual experiences best inform policy makers. The most prescient insights come from combining the best thinking from multiple disciplines is undeniable.

[Tim Osment · Rating 5 out of 5]

Physicist Stephen Hawking opened “A Brief History of Time” acknowledging that for each equation he included in the book, it would halve the sales. (He did put in one, Einstein’s Theory of Relativity.) “Ricardo’s Dream” follows a similar logic. It is enjoyably accessible. It is a book on economics written for laymen. Correction. It is not a book on economics; it is a history book on economists practicing economics. Dyer demonstrates vividly and convincingly that for all its hopes otherwise, the study of economics is more a social science rather than a natural science. Economics can provide an accurate view of the past, but it is much more difficult, if not impossible, to predict what lies ahead. Variables are just that; variable. Subjective. Dyer shares how, in economics, it is too simple, too commonplace, intentionally or unintentionally, to include data that leads to desired conclusions or, more significantly, to exclude data that does not. “Ricardo’s Dream” is one of those gems that you will find yourself thinking about during the day, looking forward to getting back to it later, and satisfied but a little sad when it ends. Highly recommended!

[John · Rating 4 out of 5]

I enjoyed this look at economic modeling and how some of its aspects have led the field astray. It features and in-depth look at David Ricardo and how his thinking still influences modern economics. Dyer also shows how Ricardo's style of thinking led modern economics down the wrong path. A good economic history read.

[Tim · Rating 5 out of 5]

Don't often write reviews, but this book is superb. Nat Dyer lifts the lid on a simple idea of comparative advantage, that has been adopted by free traders and is pretty much fundamental in the growth of globalisation. As an Economics teacher, I have always found it a bit simplistic and rattled through the usual evaluation offered by textbooks. However, Nat Dyer's book blows the theory to pieces and is a fantastic takedown of the danger of taking economics models too literally. I even used this book to write a letter to the FT Magazine criticising the great Tim Harford, which they published. Hope he has a go at the Laffer curve next!