The Ricardian System. A Graphical Exposition

Ever since its publication, Pasinetti’s 1960 paperhas been a primary reference for all scholars interested in Ricardian economics.However, Kaldor's 1955-6 diagram is a very effective tool for depicting the salientfeatures of the Ricardian system and its full heuristic potentialities are stillunder-explored. Accordingly, we give it pride of place in this paper. In whatfollows, after a brief presentation of a slightly amended version of Kaldor’soriginal diagram, we show how this diagram may be modified to represent Pasinetti’stwo-sector model of a closed economy. Next we use it to analyse alternativeconsumption patterns. Finally, we employ a variant of Kaldor’s diagram tostudy a two-sector model of an open economy. In a first stage, we study a small open economy facing given international commodity prices; in a second stage,we study the world economy in which international trade takes place amongseveral small open economies.