Retrospectives: On the Genius Behind David Ricardo's 1817 Formulation of Comparative Advantage
Journal of Economic Perspectives
vol. 32,
no. 4, Fall 2018
(pp. 227-40)
(Complimentary)
Abstract
Last year marked the 200th anniversary of Ricardo's famous "four numbers" paragraph on comparative advantage, which is one of the oldest analytical results in economics. Following the lead of James Mill (1821), these four numbers have been interpreted as unit labor coefficients. This interpretation has provided the basis for the development of the 'Ricardian model' from John Stuart Mill (1852) to Eaton and Kortum (2002). However, if we accept the labor unit interpretation of these numbers, Ricardo's exposition in his 1817 Principles of Political Economy and Taxation makes little logical sense. Building on Sraffa's (1930) interpretation of Ricardo's numbers as labor embodied in trade, our discussion reveals the amazing simplicity and generality of Ricardo's comparative advantage formulation and gains-from-trade logic.Citation
Bernhofen, Daniel M., and John C. Brown. 2018. "Retrospectives: On the Genius Behind David Ricardo's 1817 Formulation of Comparative Advantage." Journal of Economic Perspectives, 32 (4): 227-40. DOI: 10.1257/jep.32.4.227Additional Materials
JEL Classification
- B12 History of Economic Thought: Classical (includes Adam Smith)
- B17 History of Economic Thought through 1925: International Trade and Finance
- B31 History of Economic Thought: Individuals
- F10 Trade: General
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